Hungary's "economy of thieves" of the "dividend aristocracy"

June 10, 2016


Translation of blog post by Együtt politician Márton Takai entitled “Orbán’s people are already taking the money out” (Orbánék már menekítik a pénzt) .

The thieving economy of the dividend aristocracy

The myth of the creation of a national class of capitalists only serves to reveal the systematic theft of Hungary.  Two things were most apparent from company financial statements submitted at the end of May: Fidesz oligarchs are not planning for the long term, and Viktor Orbán cannot make the same mistake as he did with Lajos Simicska.

The circle of entrepreneurs preferred by the state reported nice earnings in 2015.  These have been nearly completely taken out of the companies.  The “G-Day” (the day former Fidesz oligarch Lajos Simicska called prime minister Viktor Orbán a “cumshot”-ed.) took place a year ago this February.  For this reason, the orders previously won by Közgép and the other Simicska enterprises are apparent.  Mészáros és Mészáros Kft., officially owned by (Felcsút mayor-ed.) Lőrinc Mészáros did very well, reaching after-tax profits of HUF 3.7 billion (USD 13.4 million), of which 3.5 billion (12.7 million) was paid out in the form of dividends.  Another one of Mészáros’ companies, R-Kord Kft., paid dividends of HUF 752 million (USD 2.7 million) from after-tax profits of HUF 752 million.  One of the new stars at winning state public procurement tenders in place of Közgép, Duna Aszfalt Kft., paid dividends of HUF 4.1 billion (USD 14.8 million) to its registered owner László Szíjj.  Andy Vajna’s Las Vegas Casino Kft., which enjoys a monopoly on casinos thanks to the state’s generosity, achieved after-tax profits of HUF 6.13 billion (USD 22.2 million), all of which was paid out as dividends.  Advertising companies close to the government owned by Tibor Kuna and Csaba Csetényi paid out dividends of HUF 880 million (USD 3.2 million) and HUF 700 million (USD 2.5 million), respectively. Former government spokesman András Giró-Szász’s company, Strategopolis paid out dividends of HUF 290 million.

Some companies operate in the name of immediate family members.  István Tiborcz, the prime minister’s son-in-law, picked up HUF 460 million (USD 1.66 million) worth of dividends from HCS Expert Kft. which has grown rapidly in recent years even though the company’s after-tax profits in 2015 amounted to just HUF 390 million (USD 1.4 million).

Dolomit Kft. in Gánt (just north of Székesfehérvár, Viktor Orbán’s former stomping grounds-ed.) is 51 percent owned by Viktor Orbán’s father, Győző Orbán.  There, too, more dividends (HUF 1.8 billion/USD 6.5 million) were taken out than last year’s after-tax earnings (HUF 1.1 billion/USD 4 million).  The Orbán family is the sole owner of A Nehéz Kő Kft. : 93 percent owned by Győző Orbán senior, 5 percent by Áron  Győző, and 2 percent by Győző Orbán, Jr.  That company’s after-tax profits were HUF 430 million (USD 1.56 million), of which HUF 404.3 million (USD 1.46 million) in dividends were paid out.

The names and amounts amount to a long list. What is particularly striking is the ratio of the dividends paid to earnings.  Companies of similar size and ownership structure are not in the habit of paying out such dividends for a variety of reasons.  First of all, they believe their company will continue to grow and that the big success is still ahead of them, and reinvest the money, undertake capital improvements, and build up their companies.  In theory, this would be the point of the “national capital class.”  When they think that they can no longer grow, then they sell—this happened over the past year with Fornetti, for example, Szentkirályi, and Forest Paper.  They built the companies up over the course of decades, and part with them once they have peaked.

Until that time they only pick up enough dividends necessary for their survival (in fact, in as much as this is possible they try to charge their living expenses to their companies which, of course, is tax fraud).  Can anyone imagine that Lőrinc Mészáros spends HUF 11.5 million (USD 41,700) daily?  Dividends are subject to a 16 percent tax (15 percent from this year on).  Rational entrepreneurs avoid paying this for as long as possible.  If, for example, he would like to invest in a new field, then he can do so using his profitable company, e,g., his company established a new company, and he puts his companies into a holding company, for one company simply lends money to another company.  The tax saved by retaining earnings in a company can be regarded as a kind of interest-free loan from the government.  Why would he want to give that up?

From the point of view of a real entrepreneur, what the Fidesz oligarchs are doing is totally irrational.  From his point of view, however, it is totally rational.  His companies would be completely unviable in a market setting, they are only living from state orders and concessions.  When Fidesz is no longer in power, then these companies will quickly go broke.  So why should they invest?  They cannot build anything, as that is another creature altogether.

16 percent isn’t that much if the money can be made to disappear.  So long as it appears among the company’s assets, then it remains visible to prosecutors.  Money paid out in the form of dividends, however, Lőrinc Mészáros is free to give over to the first homeless person, or set on fire, or consume with ketchup.  That’s entirely his business.  However, dividends previously received do not appear on his declaration of assets.  Of course, he does not give his money to a homeless person, but to somebody else.  After Lajos Simicska, Viktor Orbán is not going to make the same mistake of making someone immeasurably rich who can then turn on him and fail to “settle his debt.”  No strawman can really be trusted, because only that wealth is real that is in his name. The dividends, on the other hand, can leave the country in suitcases, briefcases and sports bags for placement in offshore companies in countries that protect bank secrets, and in the private safes.  Only the examples mentioned above amount to some HUF 20 billion.  500 Euro bills do not even take up that much room.  All you need are two large suitcases and a soccer championship backpack.

After this it should come as no surprise that the level of investment in the economy has been so low for many years, and that the first-quarter GDP data falls far short of the government’s plans, one of the worst not only in the region but in all of Europe.  Notwithstanding this, Orbán convoked a crisis meeting.  I guess those who assembled were able to recount for him the old joke when Cohen goes to the rabbi for advice:

Rabbi, what should I do?  $1000 is missing from the cash desk!
Put it back, my son . . .