Good morning, Ladies and Gentlemen.
Thank you very much for the invitation from the board of the Chamber. Every campaign has something new to offer; the present one is distinguishing itself by blurring the dividing line between politics and the entertainment industry. One is glad to see that at last some levity has been injected into such a cut-throat race. But there is a need to talk about the economy, and that is something serious: one cannot make a living out of verbal slapstick knockabout – even if it is funny. So we need to talk seriously about the future of the economy; furthermore, something important is at stake. Everyone knows that after 2010 we adopted a new constitution and made major transformations in the political system: you may remember that, for example, we halved the number of MPs in Parliament, did something similar related to the numbers of representatives on city councils, and so on. Although we rarely talk about it, we also initiated fundamental changes in the economy, and it is safe to say that the economy we talk about today, in 2022, is not the economy that we lived in up until 2010. So in fact those of us sitting here today who deal with economic policy are familiar with two economies: we know the old one, and we know the new one. And what is its stake in the election is whether we stay in this new one or go back to the old one. For let there be no doubt: what we know about our challengers and their conception of economic policy is that they fundamentally reject what has happened since 2010. They reject the link between social transfers and work. One of the biggest innovations since 2010 is that we have linked all social transfers – all the money that we have taken from the economy to place at people’s disposal – to work. So, for example, we have not increased the family allowance, but have continuously increased – and we intend to further increase – tax allowances for families with children. We have not given out welfare benefits, but we have organised public works programmes for people unable to directly enter the labour market, so that through them they could enter the market – or if not, then at least receive a wage rather than a benefit payment. And I could continue the list. I have to say that what is at stake in the election for you – if we look upon you as economic actors – is whether the new Hungarian economy is left in place, or whether we go back to the old economy.
The truth is that you are not curious about what details I can tell you regarding Hungarian economic policy. And if you are not curious, you are right not to be: there are other people in the Government for that; and, as far as details are concerned, they have told you what is possible to say – either from the Government’s point of view, or from your point of view. What I can offer you, in order to strengthen our cooperation, is tell you what I think, and what we will think – if we receive a mandate from the citizens – in relation to the big issues in the Hungarian economy over the years ahead. This is what I can tell you, and this is what I would like to do now.
The first and most important thing is that I do not want to make any moves in the direction of any kind of socialist-style economic policy. The point is not simply that we are politically anti-communist, although that is true; but we are also expressly opposed to any communist-style, socialist-style approaches in economic policy. This is more than an economic notion: it is a philosophical conviction. I lived twenty-six years of my life under the previous [communist] system. Some things were good: for example, the fact that back then we were still young. That concludes my list of good things. But what I remember most is that they ended up destroying the economy. And I am convinced that they did not just destroy the economy in terms of performance, but that after they killed private property, they also killed the power of private property to create culture. I believe that private property has the power to create culture; and it creates a good culture, a culture upon which to build a good life – and upon which a nation can also build its own future. So the foundation on which we stand will continue to be private property: we want people to have their own homes, their own savings, their own land, their own gardens, and their own assets. We believe that this is not only good for the economy, but also that it strengthens the culture of taking care of things, and therefore taking care of one’s own life: someone who has something must take care of it. And the resulting culture and behaviour is different from that which results from always living in someone else’s property or living off someone else’s efforts – when one’s time horizon is shorter. If someone has property, they must think about what will happen to it in the medium and long term; they cannot simply live from day to day. And private property is the only thing that helps one to overcome the bad characteristic of always following the path of easy money. Easy money is called credit. So it is only private property that curbs the human instinct for unfettered borrowing; because you know that if you borrow too much, you will lose your wealth. It is as simple as that. In fact everyone is happy to bend down to pick up easy money. So what I am saying is that the Government, if it continues in office, will out of its philosophical conviction explicitly and strongly support private property. Now we come to the question of the extent of private property. Here I would also like to make an observation. Recently I hosted Poles in my office. I am also regularly involved in negotiations with, say, owners of private capital from the Czech Republic, pursuing, for example, a joint venture in the Hungarian telecommunications sector: Czech private capital and the Hungarian state. But also with Slovaks. We tend to have a good opinion of ourselves, and this is justified in many respects – in almost every respect. But there is a problem, and in one respect I am continually confronted with the fact that we are not successful enough. Okay, Poland is a country of forty million people; but the Czechs are only ten or eleven million, and the Slovaks are five and a half. And in all three countries the concentration of capital in private ownership is much higher than in Hungary. And in an economy based on private capital – particularly in Western Europe – in which our opponents have superiority in capital, we are starting at a disadvantage. So, quite simply, in the coming years we cannot do without the element of capital: Hungary must strengthen, and it must strengthen through capital.
And so we have arrived at the point at which we are making agreements with the Chamber. Of course we are also happy to make agreements with the trade unions, and from time to time we make agreements with them on pay and various other matters. But we make strategic agreements with the Chamber. This is because the Chamber of Commerce has a mindset that sees capital accumulation as a virtue. And since this is the problem that will be the determining factor for the Hungarian economy over the next ten years, we need allies who can help us – both politically and professionally – to ensure that the policy that will strengthen Hungary has support in society. These are business actors and business organisations, with the Chamber of Commerce foremost among them. This alliance between us is not simply personal and not simply historical, but a cooperation which had been created to achieve goals derived from a vision of the future.
Ladies and Gentlemen,
Let me say a few words about crisis management measures – although Mihály [Varga] has taken virtually all the meat off that bone. The economy has grown by 7.1 per cent. I have tried to unearth some historical reference points, and I found that the last time economic growth in Hungary was this high was in 1977, when it stood at 7.6 per cent. Clearly the circumstances existing back then were completely different. The Minister has spoken about the investment rate. Our growth figure is the second highest in the European Union. And we can safely say that the entire crisis management process has been an important experience – not for the experts, but for me. This is because it has been a very significant stress test for the new economy I am talking about. The question was whether the economic system we have been building since 2010 could withstand the pressure, the strain, the shock that a pandemic lasting two years brought to the whole world. I can tell you that the answer is yes, it has withstood it. In order to take stock of the crisis management programme, I will follow the path opened up by the Minister: I will look at 2020 and 2021 together. After falling 4.7 per cent in 2020 and rising 7.1 per cent in 2021, the overall growth has been plus 2.1 per cent. This means that we have seen a rapid, strong, “V-shaped” recovery – with the second leg of that “V” longer than the first leg. This is what the Governor of the Central Bank has rightly called “overtaking on the bend”. This is what we are talking about. So let me say with due modesty, but with confidence, that the crisis management programme in Hungary has been successful.
The Finance Minister has already spoken about the most important reason for the success of the crisis management programme, and I do not need to repeat it: that when the crisis hit we were in a good condition. If a person is in a good condition, that is to say, in a physically good condition, he or she will find it easier to get through an illness. It will be easier than if they are weak and ailing. But there is another aspect that articulates or illustrates our thinking about the economy, and which I think has contributed to the successful management of the crisis, and which I would like to say a few words about. I call this the Hungarian economy’s strong complexity. So we have an open economy, but it is also extremely complex. There are all kinds of indicators for this, but the simplest indicator of our openness is the percentage of GDP represented by our exports. This is somewhere around 85 per cent, which puts us among those countries with the world’s highest GDP/export ratios. So we have a very open economy. This has many advantages, and of course some risks. I do not want to talk at length about the advantages, but I would just like to use the simple, somewhat primitive, explanation that if the Hungarian economy were not export-oriented – in other words if its capacity and performance were not built on exports, but only on its domestic market – then today everyone in Hungary would be much poorer than they are. So export orientation is a precondition for prosperity, for money, and for a higher standard of living. An isolationist economic policy cannot be based on a domestic market of only ten million people, and I do not think it is worth dwelling on that point now. What fewer of us know, however, is that it is measured – especially by the Americans, who like to measure everything, because they are a hamburger nation, and so they also standardise the economy. They have an indicator that measures complexity. And I can say that in terms of economic complexity, the competitiveness indicator developed by some fine American universities shows that in this ranking we are the tenth most competitive country in the world. So our economy may not be huge, but its internal richness, its diversity and its multi-faceted character puts Hungary in the world’s top ten – or, to be precise, in tenth place. And I am convinced that this has special value in times of crisis. This is because a crisis does not usually affect everyone: it affects some sectors more, and others less. And the more complex your economy is, the more crisis-resistant or shock-resistant you are. During the pandemic the Hungarian economy proved to be shock-resistant, because we have this internal complexity. So, talking about complexity, it is important to recall that we are strong in machine production, we are getting stronger in food and chemicals, but we are already strong in the manufacture of electronic equipment; and now we have added new sectors which further increase the complexity of the Hungarian economy, such as the defence industry. Here I do not even need to talk about the technological differences between the production of a car and a combat vehicle, and how the military industry alone raises the technological level of the Hungarian economy. But we are not simply involved in the military industry: we are also making efforts to be involved in the production of military aircraft. This is a completely new industry for us. Somewhere near the town of Gyula we are producing components in cooperation with Airbus. And there are Hungarian investment groups which have bought a factory – perhaps in the Czech Republic – which is producing complete military aircraft. I hope that sooner or later this will somehow not only be outsourced, but integrated into the fabric of the Hungarian economy. And these are completely new things, which will further enhance that aspect of the Hungarian economy that makes us strong and crisis-resistant.
In this respect the other important thing is that every country is in a certain place. There are countries that are uncomfortable with where they are, and so in their foreign policy they are constantly trying to change their “national house number”. I can tell you that such a thing is impossible. So in high school textbooks the history of Hungary may be dominated by windswept, heroic and unsuccessful struggles; but Hungary is where it is, and this is where it will remain. So this is where we must pursue our policies, and where economically we must exploit our location to the full. Every location has its advantages, even the worst – and ours cannot be considered to be that. One has to find them. And unfortunately the Hungarian economy has not paid enough attention to this over the last twenty or thirty years – or even if it has, it has not spent enough money on exploiting the economic advantages of its geographical location. We are, after all, a “transit country”. In twelve years we have built 600 kilometres of multi-lane road. It is in our interest for everything – apart from war – to pass through us: on road, rail, or however. This is also why our airport is a problem, because we should also be stronger in air traffic; but that is a subject for another discussion. Compared to its population, Hungary has the most motorways in the Visegrád 4 region. Alongside this we must now catch up in terms of our rail capabilities, because it is in our interest for freight from the East to pass through Hungary. The point of the Belgrade-Budapest railway line is that goods from Greek ports should go through Hungary to the West, and that we should at least be able to earn some of the money from this. And there are major investments in Fényeslitke and Záhony. These will serve to ensure that goods from the East – and I am not talking about Ukraine and Russia, but also from further East, including China – will all pass through us from there to Western Europe. People who are attacking developments such as these on all sorts of grounds actually wish Hungary the worst; they are not only saying that such things should not exist, but that someone else should be taking advantage of the opportunities. And in a regional competition, this is literally working for our opponents. This is unacceptable, because those commodities will travel from the South and from the East along some route somewhere. And it is in our interest to be involved as much as possible in the transit of these goods.
I would like to talk briefly about a specific aspect of the crisis management programme. The Finance Minister has already mentioned the Central Bank. I think that an important lesson here – and let us file this, so that we can use it to deal with future crises – is that in crisis management we have activated not only fiscal buffers, but also monetary buffers. This means that the balance sheet of the Central Bank has increased, and that – as you have just seen in the chart – in the area of fiscal policy state debt has also increased. I am grateful, however, to the Finance Minister for having responded to my polite request. Although in a crisis like this state debt cannot fall, and it can rise somewhat, I asked for it not to be allowed to rise back above 80 per cent. This was partly because in such an event nothing would save us from “fiscal alcoholism”: an addiction to easy money. It was also because when in 2010 I took over leadership of the country’s financial reserves, or treasury, state debt was running at over 80 per cent. And I also saw it as a question of honour that we should not allow the debt to rise above 80 per cent if we could avoid it. We can come down from that level, because we have already done so: in 2010 state debt stood at 82 per cent, and before the crisis we were at under 70 per cent. So if we were able to bring it down once before, then we would be able to bring it down again a second time. And so, crisis or no crisis, the Government did not allow state debt to rise above 80 per cent. And so this is the reason for the development of a situation which in historical terms I have never seen before: the state debt of the Austrians, for example, has overtaken that of Hungary. I am convinced that within the European Union you would need to look long and hard to find another crisis management approach outside Hungary where the combined monetary and fiscal stimulation accounted for up to 25 per cent of the country’s GDP, without upsetting the budgetary balance. Furthermore, we implemented all of this with the Finance Minister complying with my request – or the consideration I highlighted – that the labour market should remain stable. And if we look at the changes in the labour market during the crisis period, we see that there was a far smaller change than in any Western European country: unemployment did not rise, and we were able to very rapidly reintegrate into the labour market those people who were pushed out of it during the crisis. And therefore we are able to say that now, as we are emerging from an economic crisis, there have never been as many people working in the Hungarian national economy as there are now – or at least certainly not since 1990. Because now 4.7 million are in employment.
I would like to say a few words about inflation; not from a specialist point of view, that is not in my department, but about how we think about it. Although inflation in Hungary as it is now does not look good, a few days ago, in its winter report, the European Union said that this year – in 2022 – inflation here will be 5.6 per cent. That is tolerable. And next year the rate will be between 3 and 4 per cent. They do not always have my enthusiastic backing, but in this exceptional circumstance I hope that they are right. But here we are not really the ones in trouble: the problem is in the environment within which we operate. So we can reduce Hungarian inflation from its present 7 per cent to below 6 per cent by the end of the year. This may not be what one might call a routine task, but it is the expectation of the members of the Government who deal with financial matters. But even if we succeed in that, the environment within which we find ourselves is in deeper trouble. In the coming years we will be in a high-inflation environment. There are two reasons for this. One of them is that Brussels is unable to harmonise climate policy with economic policy. So they have one conception: if the price of energy is higher, people will use less energy, and that will benefit the climate. End of story. Such an approach is about as sophisticated as a doorstop. This is what they have. And despite rising inflation, they will increase prices further. Brussels is adopting decisions that will increase the price of energy. If it was not rising of its own accord, and of course it is rising of its own accord, it would be pushed up by these decisions. For example, we are now fighting an enormous battle with prospects for success which are lower than 50 per cent. But that is not a low level, bearing in mind the lesson of Hungarian history, using the “Deák rule”: Ferenc Deák said that we can fight on even when there is no hope. And so 50 per cent is more than no hope at all. So they want to increase prices and penalise those who have their own cars and homes. There is a complicated mathematical formula for this, but the essence of it is this: you must pay; those who have cars and homes must pay more than those who do not. This is nothing but a tax increase, and it will push up energy prices; and current data suggests that in the present European economy energy price increases account for 50 per cent of inflation. So we must anticipate that the environment surrounding us will be a high-inflation environment.
And I have not even mentioned the fact that there is the Russia-Ukraine conflict, and then there is the conflict centred on the Nord Stream pipeline – which in economic terms is perhaps even more serious. No doubt you have noticed that this battle is in progress. The Russians are not deficient in shrewdness: they will deliver to Western Europe all the gas for which contracts have been signed, but they will not transport any more than that. And since over there, too, energy policy is formulated by businesspeople, normal business people, they are reserving part of the gas for their own needs, and putting the rest on the market to be purchased at the spot price. One can hope that short-term purchase prices will be more favourable than long-term prices – and this is what they are hoping in Western Europe. Since we know the Russians better than that, we have not done exactly the same: instead we have signed long-term agreements that we have now recently extended, and for which we have increased the volume ordered. The Russians, however, have announced that they will fulfil the present contracts, but that they will only transport additional gas through the Nord Stream pipeline. If that pipeline is operational there will be gas, but if it is not, there will be no gas. And it is not yet clear how this tug-of-war will be decided. The earlier Western European calculation was that the Russians need to sell us gas as much as we need to buy it. This has been proved to be invalid, because it is only true when energy prices are low. But with high energy prices the situation does not look the same, the formula changes, and the Russians can make a lot more money from selling less gas than they used to. Time is not on our side, but on their side. The big mystery of the coming months is what will come of this in terms of European energy policy, and how this will affect inflation.
I must say a few words about whether the policy of the four price freezes has been well received. It has not been well received. I would like to reassure everyone that we have not lost our senses, and we have absolutely no intention of reinstating the price regulation authority. There are demands for it, because a lot of people believe that if prices are regulated centrally, the result will be lower prices overall. But those of us who have lived under socialism know all too well that this is not the case: central price control will actually lead to higher prices in the long term; and even if it is successful in one area or another, it can never be successful across the board. So we oppose government price regulation on principle, and we oppose solutions similar to those employed by a pricing authority. But as I learned from Sándor Demján: extraordinary situation, extraordinary measures. In times of crisis there can be no normative economic policy: you must intervene. There are specific decisions, specific challenges and specific remedies. So, whether or not it was well received, and as I have said it was not, as you have heard we were forced to impose price freezes in certain areas: in four areas. We have done so temporarily, transparently, in an orderly manner, and with the aim of bringing it to an end as soon as the economic situation permits. So I very much hope that, aside from the freeze on energy prices, which is the embodiment of the policy of reductions in household utility bills, we can – as soon as the inflation situation improves – remove the other three from our set of economic policy instruments. It would also be interesting to hear a presentation on what the price freezes and the reductions in household utility bills will or will not bring to economic players across the board. Since these are price freezes, we will not move their levels up or down, whether prices move higher or lower. In the longer term this brings stability. Obviously the companies concerned will be able to tell us what the balance sheet will show for them in five, ten, fifteen or twenty years’ time. But the current crisis shows that predictable regulation is probably better for everyone than volatile price levels that move in direct relation to the world market.
Talking about what else we think about the economy, I would like to tell you what we think about the challenges that lie ahead. So how do I see the challenges – or the traps – awaiting the Hungarian economy over, let us say, the next decade? I think we are doing well. I think the setup is in order: the engine room is functioning, the cash register is ringing. I think that by and large we are doing well, everybody has a job, and so there is no need to change course. If you look at the future, however, you can identify pitfalls waiting for you if you do not make decisions in good time. I see five traps for the Hungarian economy over the next ten years. So, when – with God’s help – we continue in government, and you look for what drives our decision-making, what dictates the form and timing of our decisions, remember that we are thinking about five traps that we need to avoid over the next ten years in order to be successful.
The first pitfall is the trap of excessively high levels of foreign ownership. What we see here is very good, and Mihály is right when he says that we need to compete for investment, and that it is good to have large investments in Hungary with the highest possible technological standards. We are setting records here, with a single investment of 3 billion euros being the record to date. And, God willing, before the election we will be able to announce an investment of over 6 billion euros. So this is a serious matter, and we are taking action and devoting a lot of money to it. But I still see it as a trap for the proportion of foreign ownership in the Hungarian economy to be higher than a certain desirable level. I would like to talk about this later.
The second trap is the dominance of large exporting companies, and the lack of small and medium-sized exporting firms in sufficient numbers and of sufficient quality.
The third trap is the trap of a negative profit balance. What I am talking about is foreigners taking money out, and the lower amount that we bring in from elsewhere, thus resulting in a negative balance. This is the third trap.
The fourth trap is the trap of duality. You know this, but I will say a few words about it.
The fifth trap is the trap of rural underdevelopment.
First let me say a few words about the Hungarian economy in terms of ownership. My starting point is that today the Hungarian economy is mostly Hungarian-owned – which has not always been the case. This is great news, but there are sectors that are lagging behind. If I break the overall picture down into sectors, in quite a few of them the majority holdings are not Hungarian. There are 14,000 foreign companies operating in Hungary today. In terms of revenue, between 2010 and 2020 there were spectacular increases in Hungarian ownership in energy, banking and the media. In those sectors the share of domestic ownership is well over 50 per cent. In the energy sector, in 2010 Hungarian ownership accounted for 29 per cent of total sector revenue; and in 2020 it was 56 per cent. You know the history of acquisitions. In the banking sector, MKB and Budapest Bank have been successfully brought into Hungarian ownership. In terms of revenue, Hungarian ownership was 40 per cent in 2010, 50 per cent in 2015, and 58 per cent in 2020. And in the media sector, in which I include not only news media, but also film, video and broadcasting, we have risen from 24 per cent to 51 per cent. These are great things. Traditionally there is a high level of Hungarian ownership in the health care and social care sector, including private health care, in the hospitality sector, in construction, in the real estate management sector, in transport and storage, and in the food manufacturing sector. In tourism Hungarian ownership is in the range of 50 to 70 per cent, so well above 50 per cent. But even though our share has risen in some other sectors, there are some in which we are still not doing well. These include the insurance sector, the telecommunications industry and the building materials industry. We are now trying to change that. You can see the news of state ownership in Aegon, and we are also making progress in the telecommunications industry. We have also created government bodies with market influence in the construction materials industry, and so I hope that the share of Hungarian ownership will increase there as well. In retail trade – especially in food retail – we are also not doing well, with Hungarian ownership below 40 per cent. This is just a taster, and not an exhaustive list. What I am saying is that we need foreign capital, because we are not strong enough. Earlier I said that Hungarian capital concentration is low, and that without foreign capital we will not be competitive and will not have full employment. Without foreign investment there will be no new technologies, and so there is no way we can pursue a policy against foreigners or against foreign investment. Anyone proposing such things does not know what they are talking about – or if they do, the content of what they say does not matter to them. So this is impossible. But at the same time we are Hungarians, this is the Hungarian economy, and Hungarian ownership must be strengthened. A continuously improving proportion of ownership must be created, so that competitiveness and the supply of capital increase rather than decline. This is possible, and the last ten years have been testament to this.
The second trap is the trap of large exporting companies. In 2010 there were 2,000 Hungarian companies capable of export, and now there are 12,000. So numerically one of the most visible successes of the last ten years is that we have hugely increased the number of Hungarian companies that can sell products or services abroad. In this regard, Hungarians always look to the Bavarians and the northern Italians, and we want small and medium-sized enterprises with the same level of technology, the same capital strength and the same family ownership structures as we see over there. And so the direction of Hungarian policy has been – and is – to increase the number of Hungarian companies which export. So if we take the number of companies as a starting point, the commitment we have made has been fulfilled, because we have increased the number of these companies from 2,000 to 12,000. But if I look at the export revenue, a different picture emerges: 80 per cent of export revenue is generated by foreign-owned companies, and 20 per cent by Hungarians. From another point of view, 95 per cent of export revenue is generated by 1,000 firms: large firms. So it is clear that the number of small and medium-sized companies has increased, but their weight in terms of revenue is still small – far from the Bavarian and northern Italian models. In this regard our goal is to increase the contribution that Hungarian firms make to exports from 20 to 30 per cent, and to strengthen the capital of Hungarian exporting companies as much as possible. This is also a question of trade policy, and in what geographical locations we can be stronger. Things are going well to the west: we are already integrated as much as we can be integrated into the economic system of the European Union – especially into the German-speaking economies. We have our well-trodden paths. When they do well, we also do well. But we will not be able to catch up with them in that market, so we also need markets that are more profitable than the West. There are two such markets: the Balkans and China. These are the markets we need to target. Let us not forget that our trade with the countries to the east of us has increased by 28 per cent in ten years, and the volume of investment from the East has reached 60 per cent. The largest single capital investment in Hungary – of 3 billion euros – has come from South Korea. And the one in the pipeline is also coming from the East – and not only is it coming from there, but it is also buying up Western companies. So there are many Eastern investments arriving in Hungary to replace German and American ones: the fine Hungarian worker leaves a German factory on Friday afternoon to go home for the weekend, and on Monday morning arrives back at a Chinese factory – and the handover did not even take place on Hungarian soil. So we also need to see these trends behind the changes in the numbers. In any case, we have launched an investment programme in the Western Balkans, and you know the policy of eastward opening, so I do not need to talk about that now.
The third trap is a negative profit balance, the ratio between the inward and outward repatriation of profits. In 2021 foreign companies in Hungary generated profits of 8.2 billion euros, and Hungarian companies abroad generated profits of 1.8 billion euros, so the balance of profits coming in versus those going out was minus 6.4 billion euros. Many Hungarian companies are expanding, and we support all of them. Congratulations to MOL, who are here. I congratulate Sándor on the success of OTP, which is apparent in the Balkans. Congratulations to the representatives from the telecoms sector, who have made acquisitions in Albania and Montenegro. I congratulate the companies working on road toll development in Indonesia. And I can congratulate a state-owned company, because Magyar Villamos Művek has successfully acquired energy company assets in the Czech Republic, supplying 1.6 million consumers. Congratulations are also due to farmers, and to food and poultry processors – Master Good in particular, which was brave enough to set up a plant in Vietnam, and Agrofeed, which has done the same in Russia. It takes no small amount of courage to make a major investment in Russia. So I think that the process is underway, and it is looking good. But the regional ratios are not yet good. So if I look at the profit balances of the other countries, I have to say that ours, as I said, is 6.4 billion euros in the red; and although the Poles are 23.3 billion euros in the red, their country is four times the size of ours. For the Czechs the figure is 11.8 billion euros, and so we are better off than them. For Romanians it is 8.2, but their country is twice the size of ours, and so in this respect they are better off than us. So, if I look at the whole issue in terms of GDP, I have to say that we are ahead of the Czechs, but not ahead of the others. Outward investment, outward investment, outward investment! We need to mobilise our resources, our knowledge and our skills, so that Hungarian companies that are capable of generating profits establish themselves in the areas in which they are able to.
The fourth trap is duality. This means that foreign companies in Hungary are more productive than Hungarian companies. This is true, but the trend is encouraging, because analyses indicate that the productivity of domestic firms is growing faster than that of foreign firms. Between 2010 and 2016 the duality gap was 2.4 per cent, but now it is under 2 per cent: 1.9 per cent to be precise. So duality is decreasing. This means that the productivity of Hungarian firms is still half that of foreign firms, but this situation is better than earlier. This is obviously too big a difference, and we have to reduce it somehow. Our answer to this is the digitalisation and automation in Hungarian firms, and in the period ahead we want to mobilise a lot of energy towards that. So Hungarian companies, including small and medium-sized enterprises, must also use advanced digital solutions. I know that this cannot be achieved with admonitions, but we are ready to help you. If this does not happen, this productivity gap between foreigners and Hungarians will not disappear. Similarly, we must increase our R&D spending. This is now 1.6 per cent, which is much higher than it was before; but the EU average is 2.3 per cent, which is a huge difference in monetary terms – although it seems small in percentage terms. So I can say that in terms of modern business solutions and R&D there is huge catch-up potential in the Hungarian economy, but we just need to find a way to mobilise this potential. If SMEs succeed in linking up with industries such as the defence industry, vehicle manufacturing, the electronics industry, the production of building materials and film production, then I think this process will automatically speed up.
And finally, the fifth trap is the trap of rural underdevelopment. Today the development level of Budapest is 151 per cent that of the European Union’s average level. But the Northern Great Plain stands at 47 per cent, Northern Hungary at 49 per cent and South Transdanubia at 50 per cent. All this while Budapest is at 151 per cent! And over the last ten years you have seen that we have invested enormous sums in the development of Budapest. So we have to ask whether this difference – the fact that Budapest has developed so far – is positive or negative. I would like to tell you what we think about this. I see it as positive. I am convinced that a country the size of Hungary and a country with a history like Hungary’s cannot be on the map if it does not have a city that is a world sensation. I say this as a village boy. Felcsút could have used that money, but it has come to the centre of Budapest. Yet we have to admit that Budapest is the capital of the nation; and if we want to be on the map and show what our better selves are like, that will be through our capital – which is a fantastic historical achievement. On paper, we can write that we have a Hungarian state with one thousand years of history, but no one’s jaw will drop. But if you come here, your jaw will drop, because you can see it here: you can see it in Budapest. We say that even though we are now small, we have always given more to the world than we have received from it. When you read these words or we say them, they mean nothing. But if you come here and see Budapest, you say to yourself that this really is the truth. So what I am saying is that no matter how we think emotionally about the difference and the contrast between Budapest and the rest of the country, what we need is a sense of glory, of brilliance, of a fantastic, outstanding, supremely beautiful, enthralling, great national capital. That is what we need. And I think that we had to do that first, and then we must reduce what we call the gap between Budapest and the provinces. So I think what we have done is right, even if it has not always been emotionally easy. Let us be happy that we have what we have. Furthermore, there is one more very costly thing that we must do, and which we have not yet done. When we talk about Budapest, in economic terms we are not only talking about the capital, but also about the agglomeration surrounding it. We are talking about a central economic region of 3.5 to 4 million people; and its transport organisation, its suburban rail system, is at the moment like something from the Middle Ages. Where we have achieved something, say on the Vác-Budapest route, where we have brought suburban rail systems into operation, it is clear to see that life is much easier, much less time is wasted, and performance is more competitive than in areas where this modernisation has not yet taken place – say towards South Pest, towards South Pest County. And this will cost a lot of money, because the organisation of the suburban system is very expensive. But this cannot be avoided. So what are we going to do? Our plan is that between 2021 and 2027 – this is the EU budget period – we will spend 4.265 billion forints on the Hungarian provinces: three times the earlier amount. So we should calculate that in the next seven years we want to spend three times more money on rural development than we have done in the past. The technical way of doing this is that there is EU funding, which can be supplemented with co-financing, and it is always up to the Member State concerned to decide what proportion of co-financing to supplement it with. Following on from this, over the past seven years we have added 17.5 per cent of Hungarian co-financing; and now we have made the decision to increase this to 80 per cent. If you look at why the Poles have been beating us in terms of agricultural products and services in recent years, it is because over the past seven years they have been co-financing at the level of 80 per cent. Now they are going to add less; but we are coming up with 80, and we will catch up with them – and hopefully beat them in good competition. An important part of rural development is the development of towns and cities, and I suppose that you know the Modern Cities Programme by heart: we have spent – and are continuing to spend – 50 billion forints on this every year. And there is also the Hungarian Villages Programme. This touches on deeper issues of philosophy and social organisation, and I will not go into that in too much depth, if you do not mind. But the starting point for all village programmes is the question of whether decision-makers believe that villages have a future. If they do not, then one has to soften the blow, or provide “painkillers”; if they do, then one has to develop them. There are determinants in government, and I myself am one such determinant. If you come from a village and you know what its values are, then it is impossible to condemn it to death and accept that urbanisation is a natural process – the rate of which might be as high as 100 per cent. But fortunately Karcag is not a world city, which helps a lot; and the Minister of Agriculture is from Mosonmagyaróvár. So what I am saying is that in the Government there is the line of thought that villages should not be written off, but should be kept. If we move eastwards from Hungary, say a few hundred or a few thousand kilometres, we will not find the form of civilisation that we call a Hungarian village. So the Hungarian form is a much greater asset than we tend to think. Because there are of course populated areas to the east of us. But if anyone has been to such an area, they see that it is not a village: it is not a civilisational centre where everything is in one place, where there is a school, where there is culture, where there is a church and where there are public utilities. So it is at a lower level of existence than urbanised settlements. But in Hungary this was never the case – or at least it was not always the case. So, in my opinion, to be able to live in a village at the same level of civilisation as in a town is part of Hungary’s identity. So I understand that capital, house building and real estate development all want to gravitate to the cities, but I do not think it is in Hungary’s interest to give up such a fantastic civilisational inheritance like the Hungarian system of villages. It may not be possible to keep them all. It would be good, of course, if the Government did not decide this, but those that are viable remained, with the deciding factor being the commitment of local people. Everyone must be given a lifeline, and we must fight for every village. And we will save what we can save. Where the local people together with us are not strong enough there will be a reorganisation, but we must not give up on the Hungarian village. I believe that we must fight for the Hungarian village. People who have grown up there are sometimes difficult, but they have very good cultural codes, and it is a particularly favourable environment in which to bring up the younger generation. So I would strongly argue that, in addition to the Modern Cities Programme, we should continue to support the Hungarian Villages Programme as we have been doing, with significant amounts of money. We always have heated debates with the Minister of Finance, because in 2021 we exceeded our plans by almost 100 per cent, spending 190 billion euros on village development; and this year we will spend 93 billion euros. We have bought 1,000 village buses, we have created 1,700 new medical facilities in villages, we have renovated 600 medical clinics, we have renovated and built 600 kindergartens, and we have created or renovated 2,000 village streets and 1,500 playgrounds. We are fighting for Hungarian villages, and we believe that this is a good policy.
Ladies and Gentlemen,
After this, let us talk about how we can avoid these traps. How will we avoid these traps? You would say that it is very simple. I learnt basic economics from József Bayer; in a lecture on what business is all about, he said that income should be more than expenditure. And I think that this is true. So the answer to the question of how to fight against an economic trap is money. So we need financial resources. This means that the state must continue to help on the credit, guarantee and capital side. Investment must be supported, investment subsidies must be made available to companies, and taxes must be reduced. So money is needed, meaning tax cuts, investment support, capital support, credit support and guarantee support – with the help of state measures. In the Economic Recovery Action Plan within the 2021 budget we earmarked 12 per cent of GDP for this purpose, for development, and we intend to allocate 15 per cent this year.
I would like to say something about credit, guarantees and capital. During the pandemic, credit to the corporate sector increased by 10 per cent. This increase was the second highest in the EU. This is not bad news, it is good news. So it is a huge achievement that, even during the pandemic, Hungarian companies thought that it was worthwhile to use development funds – even from the credit sector – and that it was worth developing and investing. I would like to thank the Hungarian Chamber of Commerce and Industry for the preferential Széchenyi Card Programme GO! and for all the schemes they have developed, which they created, hammered out and presented to the Government. All we had to do was understand them and then support them. If I look at the combined corporate loan book of MFB and Eximbank, it is now 3,000 billion forints: 30 per cent of the total market. And the two banks have a total balance sheet of 4,000 billion forints: 7 per cent of the total banking system. So we have state financial systems run specifically for economic development which are equivalent to 7 per cent of the banking system. If I look at the guarantees, the combined guarantees of MFB and Garantiqua total 3,000 billion forints, and we have created a state capital fund of 1,000 billion forints. So credit, guarantee and capital. This will be necessary, and while we must reduce public debt in the upcoming period, we must not let up on this. It is also true that the era of low interest rates and abundant money seems to have come to an end, but there will nevertheless be targeted, state-supported credit, guarantee and capital programmes. For the reasons I have just given, I would particularly like to stress the capital programmes.
Our next instrument comprises fiscal resources to stimulate investment. I am recounting these figures because I think we rarely talk about it in this context, embedded in this context. So HIPA [the Hungarian Investment Promotion Agency] manages foreign investment – not only foreign investment, but mostly foreign investment. In 2021 it managed 422 such projects, and for that there was 6 billion euros of capital investment. We have 1 billion euros of support for that. Now that we have a shortage of capital, our support has been quite dispersed, or diverse. I would like to see a change in this, and in the future I would like to see more focused and targeted capital support and investment incentive programmes – both in terms of geography and sectors. A general lack of capital can be remedied by general investment incentives; but if we can identify the geographical areas and sectors, then it can be targeted, and that is how we want to use these funds. We will continue to support investment in the Western Balkans, we will continue the external growth programme and the Central European economic development programme. So far we have spent 130 billion forints on this; in 2021 we planned to spend 50 billion forints, but in reality it was 100 billion forints, and this year’s budget is 25 billion forints. So we have money to support investment abroad.
The last instrument I would like to talk about is EU funding. From a macro perspective, the most important thing to remember is that the country has a negative profit balance. I have already said that this is 6.4 billion euros. The way I look at EU money is that if we pay it in, we will receive it. There is a difference between the two. Does what we get from the EU compensate for Hungary’s negative profit balance? If it does, then we are okay. The painful reality: it does not compensate for it! So our profit balance is minus 6.5 billion euros; and the money coming in from the Member States is 5.2 billion euros – sorry, more precisely, we get 4 billion euros from the EU budget. So we have a profit balance of minus 6.5 billion, and of that minus 6.5 billion profit balance, 5.2 billion is taken by other EU countries. So here we should only count that: 5.2 billion goes to the EU, and 4 billion comes in every year. So our profit balance with EU companies, taking account of EU subsidies, is negative: minus 1.2 billion euros per year. This is the exact figure to work with. If I calculate it in percentage terms, this means that 77 per cent of our profit balance, our negative profit balance, is compensated for by money from the EU. Therefore, it is right for us to speak to foreign investors and EU bureaucrats with appropriate assertiveness: in the language of “kuruc” [anti-Habsburg] freedom fighters, not in the language of “labanc” [Habsburg] collaborators. Because we do not owe them money: they owe us. They think that the reverse is true, but it is better to clarify matters at the outset. As you know, for the budget period from 2021 to 2027, an agreement must be concluded in order to draw down the money accurately, to set targets and to set timetables. This is in a document called a partnership agreement. The experience of the previous seven-year cycle is that we will have to sign this by the end of this year. So we are not yet late, and this agreement is not yet in place; but if we sign it by the end of this year, we will be where we were seven years ago. So on the whole this is in order.
What is not in order is the so-called RFF. They have had all sorts of names for this financial fund – they have called it the “Next Generation Fund” and the “Recovery Fund”. So there is this Recovery Fund, which we should have received money from, because it was conceived as a rapid financial instrument to alleviate the effects of the crisis. But now the crisis is over and the money is still not here. There are four European Union countries that have not received it: the Poles and us for political reasons, and the others, I think, for technical reasons. Everyone also knows that we almost got it, but we passed the Child Protection Act, not thinking that the Child Protection Act was linked to investment policy. But we have learned that there are such links. We are now in a tug-of-war over this: we do not want to amend the law, but they say that they will not give us any money until we do amend it. Their position is completely without standing, both morally and legally, while ours is morally, politically and legally sound. They have no right not to give it to us, so they will have to give us this money. This is the essence of the battle you have heard about, which has also been the subject of a court ruling: whether it is possible to link expectations related to the rule of law – however vague – to financial support. Everyone thinks that we are losing, but that is not the case. On this we are winning. So if you read the court judgement that was published the other day through to the end, you will see that we have not lost, but our opponents have lost. It is true that we did not win; but they lost. What does this mean? It means that we are opposed – and we will continue to be opposed – to any kind of financial issue being linked to any kind of non-financial issue. Because I am convinced that if you link financial issues with political issues, sooner or later this will become financial blackmail. This is why we must not allow the joint money that we, the Member States, collectively throw together in the EU to be linked to any political question. This is our legal position. We believe that this also follows from the Founding Treaty of the EU. This is why, together with the Poles, we have attacked this European Union regulation which has created this link. That is what we lost. The court said that it is permissible to create such a link. This, incidentally, is pushing the whole European structure away from Member State sovereignty and towards federalism. We lost that, and the court said that such a link is possible. It then explained in its reasoning what that link could be, and that is where our opponents lost. Because it says that there cannot be any general link. A link between the rule of law and money must be linked to a very specific case. So it is not possible to say that there is no freedom of the press in Hungary, and so they will not give money. In a specific economic situation in which EU funds were used, it must be said that the money was not used properly. So whatever kind of judicial independence or other problems might exist, the problem must be proven in the specific process itself, and not in a general sense. And this is why our political opponents’ idea that financial sanctions can be imposed on the basis of general political criteria does not stand up, and is non-existent. I would point out, by the way, that in the event of the irregular use of funds they have always had the means to withhold money. And in truth all this is a political brawl. Whatever you read in the Western press, in terms of money our position has not been made worse by this court ruling. If you ask more sophisticated lawyers than me, they will probably tell you the same thing. What can we do? Being right does not mean we have money, or that money is coming. So we will have to get it. But until then, because it cannot be held back indefinitely, we will fund programmes ourselves in advance. The Minister of Finance is sweating blood, but in fact we have launched all the development programmes that we wanted to develop or launch from the European fund, and we have funded them in advance from the national budget. This is causing a deterioration in the budget in terms of expenditure and revenue, but we expect all or part of this money to arrive by the end of the year, and then the deficit that has increased because of the advance spending will be reversed.
Tax cuts. This is the last financial instrument we can use to develop the economy. The OECD has an international tax competitiveness index. I do not know how much these indices reflect reality, but they exist, so let us use them. We say that when we perform badly in them they have nothing to do with reality, and when they are good, they are… This one is good. So in this tax competitiveness index, the Hungarian tax system is the 13th most competitive tax system in the world. The 13th most competitive tax system in the world, the sixth most competitive in the world for corporate tax, and the ninth most competitive for personal income tax. This is the hinge. So I ask everyone, if you ever want to intervene in politics as an entrepreneur and are looking for a point where your intervention really makes sense and creates a stake, then intervene here. So we must make every effort to defend this tax system. The competitiveness of the economy will be dramatically weakened if the tax system is dismantled – with tax credits, progressive taxation, and all that. So this is the hinge on which the Hungarian economy swings. If the hinge falls off, the door will fall down. It is as simple as that. So we must protect our tax system at all costs. The degree of tax centralisation is also measured around the world in this, and it is reported to have never been at such a low level historically – now standing at 35 per cent of GDP. That is a pretty good number. In recent years the tax wedge has come down by 12 per cent: we started at 53.1 per cent, and now we are at 41.2 per cent. This is because of the reduction in taxes and contributions paid by employers, with employer contributions having been reduced from 29 per cent to 13 per cent.
I must thank the President of the Chamber. We could never have achieved this result without the President, and without the Chamber’s negotiating delegation. Trade unions are always strong, and they want wages to be increased. Our current rivals are also talking about raising wages, but I do not know to what level. I think this shows a lack of knowledge, because you cannot raise wages to just any level: you can only raise them to the point at which they are still acceptable to business owners. If we raise wages above a level that is no longer acceptable to employers, then we will start to see redundancies. This is not a very difficult concept, and it can be grasped with relatively little effort. So we must therefore insist that Hungarian wage levels are never set by the Government. Perhaps this power could be created legally – especially if you have two thirds of the people; but I would be reluctant to do so. So the Government should not set wage levels, but they should be agreed by economic operators. Let the trade unions and employers agree on the minimum wage, let them agree on it, and let the Government put its stamp on that. But the Government should not take the initiative, because that will end up with irrational things being produced. There is a role for the Government, because of course the trade unions and the Chamber’s shrewd negotiators will arrive at a deal, and we pay the price. They will say that it is fine, there can be a pay rise, and Minister Varga should reduce the employers’ contribution. In fact we are financing the first one or two years of the whole wage increase policy. As we believe that tax cuts increase competitiveness and performance, after that – after one or two years – there will be better economic performance, even with the tax cut. So the budget revenue will be fine, but the first one or two years have to be financed, and that is what the Finance Minister is doing. This is why every tax increase is immediately followed by a tax cut. So I would warn you about the siren voices saying that they will raise wage levels to where they want to see them. No, wage levels can be raised to where employers and workers together agree to raise them – without increasing unemployment. They can be raised to that level, and we will assist in that, as we have done so far.
If I look at the tax wedge on wages, there are some categories where the tax wedge is fantastic. So the tax wedge for under 25s looks pretty good – especially as they do not have to pay tax. It is the best in the EU, but maybe the Polish one is like ours. The tax wedge for those with two or more children is also better than the EU average. But there is one group – people on an average wage with no children – for which the tax wedge is higher than the EU average. We will have to intervene there. So the tax wedge on average wages in Hungary is 41.2 per cent, while the EU rate is 39.7 per cent, let us say 40 per cent. So there is a group for which we will have to intervene with tax cuts, and I believe that the agreement that we are going to sign with László will also stipulate this. So in the new agreement between the Government and the Hungarian Chamber of Commerce and Industry we will also arrange a reduction in the tax wedge for this group in society.
Finally, knowledge centres and businesses. What we have done so far on this has not been good. So in universities we have taught theory, and the practice has been in business. This is not good. It is a very simple insight, but usually the big things in the economy are born from simple insights. I will never forget Sándor’s advice in 2010, when he said that taxes do not need to be raised, but they need to be collected. This was only a partial success, because the bank tax came in; but nevertheless, thanks to him, the Government eventually moved in the direction of introducing a road toll system, then putting smart cash registers in shops, and so on. The realisation – a very simple thing – that taxes should not be raised, but that taxes should be collected, is very simple but very important. Now it is the same with universities. It is not good having theory and practice separate, and they have to be brought together. We are now working on this, and we are calling it a change in the university model. This is why we are putting 2,700 billion forints into universities, which is ostensibly university education development money. But in fact a large part of it will also be economic development money; because this whole transformation, this change in the university model, is not just a change in funding, but also a change in the education model, linking practical and theoretical education. So universities need to do research, they need to be at the forefront of innovation and research and development, and they need to build international and inter-institutional corporate relationships. We need to have revenues, and we need to manage them. So they must look like competitive universities in Western Europe. Training must be flexible, and we still have to make changes in the accreditation sphere. We will not show how this will happen now, but after the elections. This is because the system is not flexible enough. In any event, two thirds of students in Hungary are now studying at universities which are changing the educational model.
And now I would like to say a few words about the agreement we are about to conclude. If we look at the meaning of an agreement, if it is an economic agreement we have an easy job, because there are numbers: it has either produced results or it has not. When I first entered into an alliance with you – the Chamber – in 2010, not only was the Government at a low point, but so were you. I am not saying that you were without hope, but I can tell you frankly that you did not look good. I looked at the figures, at the debt and the whole foreign currency borrowing debt; and I had to say that anyone who was a Hungarian business owner then really needed to get their act together, because our companies were in a terrible state. It was no accident that you were only able to provide work for a total of 3.6 million people. It was not that people did not want to work – although of course, there are always some like that – but in essence it was that you could not give people work. You could only give work to 3.6 million people. Now we are sitting here, you are sitting here, we are here together, and today you are giving work to 4.7 million people. I think this is because we made an agreement, which had specific points, and we implemented every single one of them. We do not come from the world of business – well Mihály did work in a company; but the majority of the current Hungarian government did not come from that background. So between us there is no trust built up through knowing one another after having worked in one another’s fields. You have not worked in politics – a good decision! We have not worked in the business world – an even better decision! So we have no shared life which can create trust. There is one thing that can create trust: we can make an agreement and keep to it. And I can tell you that I have kept every agreement that I have made with you. And you can not only be sure, but you can be surer than anything that if you conclude an agreement with us and I sign it, that agreement will be honoured. This is how it has been, and this is how it will be. Obviously I have some faults, but perhaps I am not stark staring mad; which is why I do not sign agreements with people who do not respect them in the same way that I do. So I sign these agreements on the basis that you, like me, have complied with every point in the agreements over the years. I would like to thank László for that. But I also see no other way of acting. Business and politics have not always been separated, and there are other models of governance; but when they are separated as they are now, trust can only be created through agreements. Therefore I am happy to sign this agreement, and I am sure that it will be in line with our great national strategic goal of annual economic growth of 2 to 3 per cent above the European Union average. And when European economies stagnate and decline, we must be on an upward trajectory. Around 2030 there will be all kinds of major realignments in the world, which I do not have time to talk about now, but a lot of things will happen – from America to the European Union. Around that time, around 2030, nations will all be tested, and subjected to a major stress test much greater than this pandemic. By then our nation, our national community – including our economy – will have to be in a condition to meet those challenges there and then, and even to prosper. This is what lies ahead of us. For this we need an agreement, an agreement such as the one we are about to sign. And if we can keep to this agreement in the next ten years, by 2030 we will be at the average level of development of the European Union, we will have defence capabilities, we will have consequential universities, and we will have a technological advantage compared to others in the region. And with good political leadership we can combine these things to create a Hungarian national competitive advantage not only in this region, but also beyond. For this I wish you strength and good health!
Thank you for your patience while listening to my long analysis.
