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Spokesman Defends Hungary Against Criticism, Touting Economic Successes

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As Hungarian Prime Minister Viktor Orbán comes under now-routine fire among critics in the West for his embrace of “illiberal democracy,” his government spokesman has embarked on a charm offensive to counter the criticism and paint a very different picture of his boss.

During a recent visit, Zoltán Kovács reminded Washingtonians that Orbán and his right-wing nationalist Fidesz party have won three elections and generated enviable economic statistics as he tried to redirect the conversation about Hungary away from a rote of accusations, ranging from stifling political dissent to discriminating against migrants. 

The visit marked Kovács’s third or fourth to the U.S. — he wasn’t sure of the exact number — as the government spokesman joined a parade of high-ranking Hungarian officials who have come to the nation’s capital to defend Orbán against charges that he’s taking Hungary down an authoritarian path à la Russia and China.

Kovács said he’d come on a mission to dispel what he called the many myths and misconceptions that have been making the rounds about Hungary since Orbán returned to power in 2010.

“Myth busting is something we’ve been trying to do for the last eight years,” Kovács told a friendly audience at the D.C. residence of Hungarian Ambassador László Szabó on an unusually hot, humid day in mid-October. “I truly believe that the tone of the attention on Hungary is changing, due to the new administration [in Washington] … but also, we believe, it’s the result of those myth-busting messages, materials, meetings, discussions and lectures that we’ve been trying to use to talk about what we really think in Hungary.”

Much of the attention Hungary has received in recent years has focused on the erosion of independent institutions under Orbán, including the judiciary, civil society and media, as well as Orbán’s demonization of immigrants from Muslim and African nations, bureaucrats in Brussels and Hungarian-American billionaire George Soros. 

Orbán’s denunciations of Soros and other foreigners who he says meddle in his country’s internal affairs have energized his populist base and shaken up politics across the EU. Less publicized, however, are Orbán’s economic policies — or, as his government refers to them, “Orbanomics.” This economic agenda rests on four pillars: competitiveness, a workfare society, good demographics and identity-based politics, according to an information sheet written by Kovács. 

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After the 2008 financial crisis, Orbán adopted a more interventionist approach that remains controversial but by many measures significantly improved Hungary’s economy. Among other things, Orbán nationalized private pension savings and introduced a flat income tax while taxing banking, energy, telecom and other sectors. The moves drew the ire of EU officials and foreign investors but also allowed Orbán to slash public debt and cut the budget deficit to meet EU-mandated targets.

Since then, the country’s credit ratings have improved, unemployment has dropped and the economy has steadily expanded, buoyed by a construction boom, increased domestic consumption, foreign investment and EU development funds. Orbán was also able to institute popular measures such as lower utility prices, a rise in the minimum wage and a public works program, while at the same time easing up on banking and other taxes.

Yet income disparity remains high, corruption is pervasive and hundreds of thousands of Hungarians have left the country in search of better-paying jobs elsewhere in Europe.

Nevertheless, Kovács said his country is on the right path.

“There’s a cautious optimism and self-assurance that what we do is right and what we do is good,” he said.

To see exactly what’s right, we broke down Hungary’s economy according to the government spokesman and other sources.

Growth

Kovács: Orbán’s Fidesz party returned to power in 2010 “with an economy that was on the brink of collapse, in ruins. It had to be refurbished and by now I can tell you that the Hungarian model, as we say, is really working. Just to tell you and repeat the usual macroeconomic numbers, we started with economic growth of minus 6.5 percent. Today, it’s 4.9 percent, and it’s going to be well above 4 percent by the end of the year.”

The International Monetary Fund: The Hungarian economy is expected to achieve another year of strong growth in 2018. Staff projects GDP to grow by around 4 percent, similar to last year. The strong economic expansion will continue to be supported by robust private consumption and EU funds-related investments,” according to the IMF.

“However, the output gap has closed. It will turn positive over the medium term, and growth is projected to gradually decelerate starting in 2019 as the utilization of EU funds tapers off unless substantial structural reforms are implemented to boost productivity and potential growth.”

As observers like the IMF have pointed out, Hungary’s GDP has been heavily reliant on EU funds. But as Orbán increasingly butts heads with Brussels over issues such as immigration and the rule of law, some EU members have proposed cutting Hungary’s share of the next tranche of funds in the 2021-27 budget, which could threaten the country’s growth (also see “European Union Seeks to Influence Hungary, Poland Through Budget Funds” in the August 2018 issue). 

Jobs

Kovács: “We inherited an economy where only every second able-bodied Hungarian worked. The employment rate was somewhere around 53 to 54 percent. Today it’s at 69 percent, so close to 70 percent, which is a little bit beyond the European average,” he said. “The target is to go well beyond 70 percent because we believe we shall build a ‘workfare’ society, as we call it, instead of a welfare society by the classical means. Accordingly, unemployment numbers have come down. We inherited an unemployment rate of 11.4 percent. Today it’s at 3.6 percent” — a record low, Kovács said. He also points out that much of this job growth has occurred in the private sector, while the number of people employed in the public sector has shrunk.

Eurostat: The employment rate in a country measures the percentage of working-age adults who performed work for pay, profit or family gain during a reference week, even if they only worked for one hour, according to the European Union’s statistics agency, Eurostat. Growth in the employment rate has occurred across the EU, reaching 72.2 percent in 2017 — the highest rate since the bloc began keeping track in 2001.

As might be expected, statistics posted by the Hungarian Central Statistical Office match those given by Kovács. Eurostat puts Hungary’s employment rate for 20- to 64-year-olds at around 73 percent, while Trading Economics says the rate increased slightly in August this year from the previous month but was in the low 60s. The Washington Diplomat contacted Trading Economics to obtain clarification on the discrepancy but had no immediate response.

CIA and OECD: The Organization for Economic Cooperation and Development puts Hungary’s unemployment rate at 4.2 percent, while the CIA World Factbook estimates the 2017 unemployment rate to be 4.4 percent. Either way, Hungary’s unemployment level has gone down significantly. It was over 11 percent in 2010, the year Orbán introduced his unorthodox economic policies. Like other Central and Eastern European countries such as Poland, Hungary’s unemployment rate also stands in stark contrast to still-ailing EU economies such as Spain (14.5 percent) and Greece (19.5 percent).

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Workfare 

Hungary’s good and growing employment rate has been boosted, some experts would say artificially, by Orbán’s controversial “workfare” program. An April 3, 2018, article in The New York Times said “more than 200,000 Hungarians — nearly 4 percent of the country’s work force — participated in the government’s workfare program and were therefore counted as employed” in 2017. Some of those workers did jobs that “did not really need to be done,” the article said. Others worked for an hour a day and then went home.

In Siklosnagyfalu, the village near Hungary’s southern border that was the focus of the Times article, participants in the workfare program were paid $175 a month — better than any unemployment benefits they would have received but still less than half the minimum wage.

Gyorgy Molnar, a specialist in workfare at the Institute for Economics at the Hungarian Academy of Science, told The Times that the real unemployment rate in Hungary in 2017 was probably around 7.3 percent — “lower than when Mr. Orbán entered office, but far higher than the official rate of 4.2 percent.”

The Times article did give Orbán and his Fidesz party credit for reshaping Hungary’s economy and said the workfare program has helped places like Siklosnagyfalu but argued that “things are not as rosy as the traditional macroeconomic measures suggest.” The downward slide of health care in a European ranking system and the sharp uptick in corruption were two of the less-than-rosy factors in Hungary, according to the article.

But Kovács, writing in an Oct. 4 blog for the government, argues that Hungary’s record-low unemployment rate and other economic achievements prove that the concept of a “workfare economy” works.

“Many critics doubted Prime Minister Viktor Orbán when he laid out his comprehensive plan to transform Hungary into a workfare society, a market where everyone who wants to work can find a job and earn enough to make it worthwhile,” Kovács wrote. “As investment continues, wages increase and GDP continues to grow, that goal, something that seemed impossible back in 2010, now appears within reach.” 

Expats

Also boosting the employment rate is Hungary’s declining population, which is due in part to an exodus of workers seeking higher-paying jobs in other countries.

Although the economic reforms in Hungary introduced after 2010 appear to bring impressive results (reduction of the unemployment rate, stable growth of GDP, increase of salaries, etc.), the constant population outflow, particularly that of the younger generation, needs to be taken into account as well,” wrote Michal Kowalczyk in the Central European Financial Observer in 2017. “On the one hand, the emigration evidently helped to reduce the unemployment rate, but on the other, it can cause significant problems for Hungary’s economy and social system in the future. The Hungarian government has already taken steps towards encouraging Hungarians to stay in the country and to have more children.”

Demographics

Indeed, emigration, a low birthrate and the inevitability that a certain number of Hungarians are going to die every year mean Hungary’s population has fallen from just over 10 million in 2010, the year Fidesz returned to power, to around 9.85 million in July 2017.

Kovács said during a Q&A session at the ambassador’s residence that increasing the birthrate of Hungarians was one of the government’s top three priorities. Tax exemptions ranging from $400 to $1,500 per child were introduced in 2011 to encourage more Hungarians to have babies. Taking into account the differences in cost of living, this would be equivalent to giving Americans tax breaks per child of up to $16,000.

In 2015, the government announced generous subsidies for couples who buy or build a home. These financial incentives would increase depending on the couple’s marital status and the number of children they had. At the World Congress of Families in Budapest last year, Orbán said his government aimed to increase the birth rate from 1.5 children per woman to 2.1 by 2030.

Economists point out that another solution to Hungary’s looming labor shortage — besides babies — is immigrants. But Orbán has adamantly ruled out taking in migrants or refugees, arguing that illegal immigration threatens not only Hungary’s economic gains, but also its national security and Christian identity. 

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Sovereign Debt 

Kovács said that because of the government’s strict fiscal policy, Hungary’s annual deficit remains well below the 3 percent limit set by the EU, while sovereign debt continues to fall as well. “From 84 to 85 percent of GDP, today we are down to 73 to 74 percent. By the end of the year it will be closer to 71 to 72 percent. So it’s a slow but steady process. As we say, we never reach beyond the blanket we have, but … all the achievements we have are by the performance of the Hungarian economy, and that is by the Hungarian workforce, the Hungarian people.”

According to Trading Economics, Hungary recorded a government debt equivalent to 73.6 percent of its GDP in 2017. The fact that Hungary is not a part of the Eurozone and uses its own currency has also helped curb its debt.

“By shifting financing to forint-denominated debt sales, Hungary’s reliance on foreign currency debt and foreign investors has decreased. And after squeezing the banks for years, Orbán started to cut the bank tax this year, improving investors’ mood,” wrote Krisztina Than in a September 2016 Reuters article.

Orbán’s supporters say he helped avert a Greek-style meltdown when he came to office in 2010. He inherited a €20 billion IMF bailout program but paid the loans off early by strengthening fiscal discipline and taking advantage of lower borrowing costs. That helped improve Hungary’s credit ratings, which in turn attracted more foreign investment.

“Following an in-depth review of investment potential around the globe last May, Global Best To Invest ranked Hungary among the top ten investment destinations in the world, while IBM awarded our country a prestigious seventh place in its 2017 Global Location Trends report. On top of this, it named Hungary’s Investment Promotion Agency (HIPA) the best investment promotion agency in the region,” Kovács wrote in early October, noting that jump in investment has gone hand in hand with a steady increase in wages.

Wages

Kovács: “The rise of real wages over the past four years now is in double digits every year. The latest number is 12 percent, which means the gap is closing between Hungarian wages and Western European average salaries. It’s high time for that,” Kovács said. “We’ve also cut a deal with employers nationwide. That is if the increase of real salaries reaches a certain level — the double-digit 10 to 11 percent — we decrease taxation on them by 0.5 percent every year or even more. So we have set a bar by which we decrease the taxes.”

Trading Economics: Hungarian Central Statistical Office data and Trading Economics both confirm wage growth in Hungary. Figures released around three weeks after Kovács’s visit showed that wages had increased by 10.1 percent year-on-year in August. While that’s a healthy increase, and one that many American workers can only fantasize about, wage growth fell shy of analysts’ expectations and was 2.7 percentage points less than the previous month.

This was an opportunity to illustrate how the same figures can be spun differently to send messages with a different vibe: Some headlines bemoaned that wage growth failed to meet expectations while others boasted about the 10 percent spike. Both versions are technically correct — proof that it isn’t what the figures say but the way you present them.

Other ‘Benchmarks’

Kovács also trumpeted the fact that Hungary has the lowest corporate tax rate in Europe at 9 percent, is fighting tax fraud and sharing the achievements of its economic miracle across society. Banks are flourishing, and revenues and profits are back at levels not seen since the start of the global 2008-09 recession.

And yet, “for the past eight years, many times we’ve been bumping into something strange, and that is that in the face of our political and economic success, we are still measuring ourselves to something different and that is the benchmarks and measurements that others are trying to throw on us,” he lamented.

Hungary’s benchmark, Kovács said, is the national interest of Hungary. Orbán’s government has scored numerous victories — at the polls, in the economy — and deserves to be proud of them instead of having to defend itself against the many accusations being leveled at it, Kovács said. Those include a crackdown on free speech; the shuttering of newspapers that have expressed opinions that don’t rhyme with the government’s; barring migrants from entering; undermining the independence of the judiciary; corruption; privacy and data protection; academic independence; freedom of religion; the rights of minorities and more. The European Parliament voted in September to initiate punitive actions against Hungary under Article 7 of the EU constitution for eroding democracy and undermining EU values.

But Kovács roundly rejected that criticism. Winners have nothing to be ashamed of, he said, and Fidesz has healthily won three elections now. “If someone is victorious, there’s no call for any kind of shyness or shame. Many of our adversaries are trying to suggest that our political victory, the results of our economic turn, the reforms if you like, are coming at the cost of something else. They’re not. They’re coming at the benefit of the country,” he said.

“There is no benchmark by which they can measure democracy in Europe,” he continued, calling EU criticisms of Hungary “a political witch hunt that’s been going on for the past eight years.”

“The benchmark should be reset. The benchmark is the will of the Hungarian people and the benefit of the Hungarian people,” he said.

Change Hungarian to American, and the tune is strikingly familiar.


About the Author

Karin Zeitvogel (@Zeitvogel) is a contributing writer for The Washington Diplomat.

Last Edited on November 28, 2018