Hungary is not a planned economy, but a market economy, Minister for National Economy Mihály Varga said in an interview with German daily Welt am Sonntag.

Hungary launched a new economic policy in 2010, but the Government is of the opinion that society can best benefit from a market economy, Mihály Varga stressed in the interview with the German conservative daily, as a response to a remark citing critics of the Government’s economic policy that signs indicate a turn towards a planned economy. “Each country has a different interpretation of capitalism,” he said, citing the examples of Germany, the United States and China.

Speaking about extra industry taxes levied primarily on the Hungarian subsidiaries of foreign multinational companies, he pointed out that the decisive factor for levying these taxes was profitability rather than domestic or foreign ownership. He stressed that enterprises that pay extra taxes also profit from a more stable economy.

With regard to a claim that the Government’s measures have damaged the perception of the country among foreign investors, Mihály Varga said that the stable parliamentary majority of the Government enables the swift adoption of regulatory amendments which “many enterprises still have to get used to”.   When the journalist alleged that current economic policy may permanently deter investors, the Minister said that in the past couple of years investor confidence has not deteriorated; foreign enterprises continue to be eager to invest in Hungary and they profit from more agile political decision-making, in addition to which the country has become “extremely attractive” for enterprises as a result of the taxation system overhaul.
As far as nationalization is concerned, the Minister stressed that the philosophy change concerning economic policy is a worldwide phenomenon which also concerns services that are vital for the community. The new attitude is that when it comes to public services it is the quality and proper tariffs that matter the most rather than the profits of service providers, the Minister said. He added that he “does not like talking about nationalization, because the term calls to mind expropriations in the 1940s and 50s”, and he underlined that the Government intends to come to a reasonable agreement with the owners of the enterprises involved.

Speaking about consultations held with the International Monetary Fund (IMF), he said that Hungary had always wanted a safety net from the IMF rather than money. Talks will be resumed at a conference in Washington starting next week. “I hope that the IMF will also slowly realize that we do not need money,” Mihály Varga said, adding that the IMF and the Government agree that the lack of economic growth is the greatest challenge, but they disagree on how to achieve growth. The IMF is urging the abolishing of bank taxes, because it believes that it may lead to the reinvigoration of lending activity. In the opinion of the Government, however, the banking system is only one factor among many. The key reason for sluggish investment is that enterprises only take out an investment loan if they expect their profits to increase. Enterprises “must have the impression that demand for their products will grow,” but unfortunately "this is not currently the situation" the Minister said. Yet another problem, he added, is that foreign banks which control 80 percent of the Hungarian market have withdrawn significant amounts of capital from the country, and lending requires these resources.
Answering a question on fears regarding the independence and activities of the National Bank of Hungary (MNB), the Minister stressed that “the Hungarian economy was at its best during the past twenty years when the concepts of the Government and the MNB coincided”, which happened for the last time at the turn of the millennium, and “now there is the chance for that again”. However, the MNB will remain an independent institution with the key mandate of assuring price stability.

(Ministry of National Economy)