Hungary needs to invest in public education says András Vértes

March 3, 2017

Interview with András Vértes, head of Gazdaságkutató Zrt. (Economic Research Zrt.) on ATV’s Straight Talk of March 1, 2017 posted under the title “Education: We’ve Gone Back Decades Instead of Entering the 21st Century.”

Egon Ronai (ER):  Viktor Orbán said we have to preserve our ethnic homogeneity, and that mixing causes problems, as though we were an island.  Can Hungary be treated or interpreted as an island in the world from an economic or any other point of view?

András Vértes:  In the modern world we are constantly mixing, and I think that is normal.  Our children learn at home, learn abroad, work at home, work abroad.  And it was for this reason that we wanted to belong to Europe.  So that there wouldn’t be borders and it would be possible to move around.  Naturally, we have to permit this to others as well, in an orderly manner and according to normal conditions, of course, but likewise we have to allow this.  All of Europe can strengthen from the fact that there are people who come here who want to work and be active.  Much of Europe is in need of workers. Even Hungary will soon be in need of workers.  This cannot be avoided.  We can try with the second, third, fourth or fifth fence, but we will not be able to completely defend (the border).

ER:  Hungary needs labor.  If we need to protect homogeneity, whatever that means, let’s not go into it, and guest workers may not come, then where will the workers come from?

AV:  From nowhere.  This whole manner of thinking is a hole. A black hole in which there is no substance.  They simply cannot move away from their earlier ideas, earlier efforts, even though obviously this does not work.  Naturally, this has to happen in an orderly manner.  I wouldn’t like to say either that we should allow everyone in every manner.  That’s out of the question.  But it would be in Hungary’s basic interest for skilled, semi-skilled and entrepreneurs to come here who want to pursue their dreams and work here.

ER: Viktor Orbán says Hungary is not a country that distributes money without results and work.  Is that what the fundamental issue is about?

AV:  No, but in theory I could even agree with this. There has to be results and work in order for somebody to get money.  That’s fine. But the current situation is that many people receive money because they are in a situation where they cannot work or, as in the case of pensioners, others work which enables them to receive a lot of money.  But I discretely ask, what was the decrease in household utility costs if not a distribution of income without work?  In the modern economy there are many different kinds of things.  Some countries in northern Europe and Canada are thinking about introducing this and have even taken greater or lesser steps.  It is a disputed question.  Nobody is saying we should undertake this in a crazy manner.  But why couldn’t we undertake an experiment?  If we could allow ourselves for those with higher incomes to benefit far more than those with lower incomes within the framework of the decrease in household utility costs?  Really, the basic income means that nobody is left by the side of the road.  Didn’t Fidesz say something to this effect?  We’re talking about a few tens of thousands of forints.  And in exchange, a number of complicated supports would end, and in this way the system would be simplified. You wouldn’t need a large bureaucracy to administer this.  One can argue the issue but it is pointless to completely reject it.

ER: The event was hosted by the Chamber of Industry whose head, László Parragh, started by saying that he would support — this way perhaps surprising to employers —  that wages rise. And then came Matolcsy who said he would like for taxes to be even lower.  Was this the event of giving and receiving?

AV: Everybody gave advice to everyone else.  Everyone told others what to do, or what they did well.  Matolcsy praised his activities as minister for economy and then the head of monetary policy.   In light of recent statements, I would be cautious about believing that there were solid grounds for his self-praise.   Mihály Varga actually criticized him, saying that, yes, there were improvements from 2013 onward, when he was minister and not Matolcsy, and that a football team from Győr having something to do with Quaestor became champions in 2013.  There are tensions in this kind of government structure and they were apparent.

ER: How free are Varga’s hands and to what extent does Matolcsy continue to run everything.

AV: Viktor Orbán mentioned Matolcsy’s name far more often than Varga’s. This indicates that he spoke more often with the central bank governor than with the minister of national economy. By the way, I don’t think that is a good thing.  The minister for national economy has to be the main leader responsible for the country’s economic polices.  Probably, he is not the main leader but rather Viktor Orbán.  This was apparent in the fact that he was the first who started criticizing the Hungarian economy.  It was very interesting.  Prior to that nobody said much of anything.  Parragh noted that the Hungarian economy could be more competitive, but did not speak seriously on the subject.  Then Viktor Orbán said, this is all well and good, but we should not be satisfied with this because this will not be enough in the future.

ER:  In this he is obviously right.  We got fantastic numbers about what wonderful future awaits us.  From our current stable situation with an increase in competitiveness, we need to achieve annual GDP growth of 5 percent by 2020. Naturally, without EU supports, because he says we cannot say now whether they will exist after 2020 and how much.

AV:  The point is that the Hungarian economy is heavily dependent on EU subsidies at present.  If a lot of money comes in in the way of agricultural and investment subsidies, then the Hungarian economy will grow faster.  If they don’t come in, then the economy will only grow 2 percent, as in the case of last year, and investments, which were off 20 percent last year according to this morning’s KSH figures.  Nobody calculated with a 20 percent decrease in investment last year.

ER:  Does that show that if we don’t receive serious capital from the EU with which to fund investments, then this is what the Hungarian economy is capable of?  20 percent less than the previous bases?

AV:  The Hungarian economy does not undertake sufficient investments.  Hungarian private capital does not invest sufficiently because the circumstances are very uncertain. The government is constantly changing the various rules, and systematically worsens the conditions for economic actors.  Certain things it improves . . .

ER:  That’s what they usually say about foreign investors.  The reason foreigners don’t bring their capital here is because, as you just listed, the conditions are changing, the legal background, the tax code.  Do Hungarians also think this way?

AV:  Do you think Hungarian entrepreneurs are dumber than foreign investors?

ER: They are more tied to Hungary than foreigners.

AV: Well, obviously, but a clear entrepreneur invests some here at home and takes some capital abroad for the sake of security.

ER: But is it realistic to achieve a consistent annual GDP growth of 5 percent from 2020 or does this resemble a five-year plan from 1955?

AV: At present it is not realistic.  Hungary’s current so-called growth potential is 2 percent or less in a normal situation.

ER:  What will the 5 percent GDP growth be from?

AV:  This is where there is a difference of opinion. What was expressed at the economic conference was, on the one hand, they are very sorry there won’t be the Olympics.

ER:  They thought it would stimulate the economy?

AV: They referred to the referendum as nefarious, but I think it is an exaggeration.

ER:  This is the referendum that was cancelled by the government, or at least it will not take place.

AV:  As though they did not say anything similar about the referendum on migration.  This was a strange thing.   If we try to look at economic processes, what they meant by economic development was building the Belgrade-Budapest railway, building Paks 2, and this will stimulate the economy.   However, I believe that Paks 2 will not generate revenue, but consume it.

ER:  In the short term as well?

AV:  In the short term, obviously so long as they build there will be work there, but that is not the question.  The question is, after that for the next twenty or thirty years, what will it bring?   Every calculation shows that the cost of building the Belgrade-Budapest railway will never be recouped.  It will only be recouped if very serious Chinese investments took place in Hungary along the railway, about which there is no talk at this time. The Chinese are giving Hungary a loan, and China and Hungary are building the railway together.  In the case of Paks 2, everybody knows that Paks 2 will be far more expensive than the current Paks electricity, which is cheap because the investment has already been paid for.  Paks 2 will be terribly expensive.  The experts know that half of Paks 2 would be more than enough.  But that these will not take the economy forward is certain.  What drives the economy?   The accumulation of intellectual capital.  Development of public education and higher education.  Putting our public health-care system in order.

ER: If these things are resolved by 2020, then can we talk about 5 percent GDP growth?

AV:  I wouldn’t think so, because typically these are long-term things.  In the case of public education we went back to the 19th century instead of forward to the 20th.

ER:  Are you saying that we were fed a bunch of wishes?

AV:  Yes.  If we invest in public education and make a normal system, which is not easy, if we start to do this, then we will see the effects of this in 15 years when today’s children enter the workforce. This takes time, which is precisely why this is what we should invest in now.  The money freed up from not hosting the Olympics should be invested in the development of intellectual capital.

ER: György Matolcsy also talked about a drastic reduction to the 15 percent income tax.  Previously they talked about a tax rate in the single digits, say 9 percent.  Is that realistic?

AV: It is possible to do anything.  What they need to do is decrease the tax burden on people with low incomes.  It should not be decreased on people with higher incomes.

ER: There is no talk of introducing a progressive taxation system.

AV: Poverty in Hungary being what it is, we all know, is a very difficult matter.  Is it worthwhile helping the poor by having the rich pay more taxers temporarily on the basis of solidarity?