06 December 2013

Gábor István Kiss (GIK): I have sitting here next to me Prime Minister Viktor Orbán. Good morning to you too!

Prime Minister Viktor Orbán (VO): Greetings to the show's listeners, Good Morning.

GIK: The GDP data for the third quarter is out. These tell us a little more about the performance of the economy. Let us have a look at how exactly the economy is performing. Firstly, the fundamental question is: what do we have to thank for this excellent performance, which surprised even the analysts? The gods, meaning agriculture, or the Government's job-creation and economic stimulus programmes? What is your reply to this question?

VO: My reply is that it is thanks to those people who want to work, thinking back on what the country was like four-five years ago. We were a country in which many people thought that it is better to live off benefits rather than off work. The tax system punished those who wanted to work more. Behind our performance is both a cultural change and a change in the economic model, because when the people told us to renew Hungary, they didn't say, you renew it and we'll stay the way we are, but instead the people said that we all need to play our part, not just the banks and the multinationals, but us too, who live on the outskirts of our village, we need to do something differently too. And what I'd like to say is that I think the country understood that if we don't change, and if we don't renew the country, then we will not just stay in the same position, but Hungary will collapse, as we have seen happen in some countries of the European Union.

GIK: There are two things we need to take into account here. Performance last year, in the base year, was relatively low, meaning there was plenty of room for improvement. This decreases the success of this 1.8 percent, doesn't it?

VO: Only if we look at this year separately. If however, as I attempted to do before, we look at the three years together, then we can state that there was some growth in 2010, although the Government only took office in the summer. In 2011, there was significant growth of around the same magnitude as this year, 1.6-1.7 percent. In 2012 there was a wave of crisis in Europe, so there was no growth there, and there is growth in 2013 and there will be further growth in 2014. So when I must settle my accounts, or we must settle our accounts, because it isn't just the Government, but everyone who needs to weigh their individual balance of the past four years before themselves, then we can safely state that out of the four years the country did a good job in three; there was economic growth in three of the four years, and none in only one.

GIK: The average person probably does weigh things up, but his question is very simple: how much do I see of this, how much am I taking home? You, politicians on both the Government and opposition side, talk about the status of economic performance, we have the latest GDP data here in front of us, but this GDP data doesn't have much to do with me; what is noticeable of this for a simple, everyday member of the public like myself?

VO: This is the question I asked myself and the country in 2010 when the Government came to power, and what we said was that it is important that the economy's significant, overall, what we call macroeconomic figures should begin to improve, but this must also be mirrored in everyday life. And this is why it isn't the profits of the banks that have increased, but instead the minimum wage; this is why it isn't the profits of the multinationals that have increased, but there have instead been wage increases and a reduction in utility charges in Hungary. What I have been working for over the past three years is to be able to translate the achievements of our successful economic policy into the language of everyday life, and to make growth visible there. The way I view the economy, while we are always talking about the GDP and the deficit and so on, is how we stand with jobs, with wages, with utility charges and with the rate of inflation, with price increases. As far as jobs are concerned, what I can say is that there are almost 4 million people in employment in Hungary now; the last time so many people had jobs in Hungary was in 1991-92. That's 235 thousand more people than when the Government took office. We have seen a continuous increase in wages, partly as a result of the decrease in utility charges, partly because of tax cuts and partly because of actual wage increases. Utility charges didn't even decrease during communism, they always went up, and now, utility charges are decreasing in Hungary and inflation is at a record low; it has been 40 years since the purchasing power of money decreased at such a low rate. I can almost say that it is retaining its value.

GIK: These are the most important indicators. If we look at the details, then if I'm not mistaken, tourism in 2013 had already reached the level for the whole of 2012 sometime at the end of October, early November, which is clearly pushing the economy upwards. But services, for instance, enterprises, Hungarian enterprises, enterprises that depend on Hungarian consumers are hardly showing any signs of life. And this, perhaps, is a good way of evaluating whether the central bank's economic stimulus programme is working or not. The Hungarian small and medium-sized enterprise sector is not showing the signs of life that these figures would suggest for the moment.

VO: That's true, and there are two reasons for this. First of all, yes, it is lending that is always required for growth, and investment projects are also always needed for development and growth. Well, loans were still very expensive in recent years until the central bank changed its policy; until György Matolcsy took over as Governor of the National Bank, these interest rates were kept high and reductions in interest rates were only possible through continuous political battles, something which does a country no good at all. But now there is harmony between the Government and the central bank, and the decrease in interest rates is slowly making loans accessible to small and medium-sized enterprises, in addition to which the central bank has launched a special loan programme, which should solve the problem. When I have met bankers and financial experts over the past two-and-a-half, three years, they have always told me that they could provide loans at economically rational interest rates, but there aren't really any entrepreneurs who would want to borrow, because there is no room for growth. And the entrepreneurs always told me that they would be happy to do more business, but that can't be done at an interest rate of 8-10 percent, because it is practically impossible to generate that level of profit legally in Hungary. In reply, the National Bank and György Matolcsy launched an enterprise loan programme for small and medium-sized enterprises with an interest rate of 2.5 percent, which was immediately oversubscribed. This means that the entrepreneurs were right and not the banks, because they would be happy to invest if suitable loans were available. Well, now they are; this programme was only launched a few months ago and I hope that it achieves the expected results. But there is something else that you and everyone who talks about this should take into account. The economic crisis and the tragedies of foreign currency debtors have changed the Hungarian way of thinking on money, savings, spending, loans and consuming. It seems to me that the Hungarian people will not step into the same river or fall into the same trap again and will not take on loans without thinking in the belief that quick, easy money will always be available and will always be there to offer a better standard of living that requires less work. It is my belief that people have changed their habits, and the ratio of consumption, loan repayment and savings in households is changing, and in the right direction I think. We need to pay our debts back first, get rid of our loans and then if we earn money we should consume some of it and build reserves from the remainder. This is a prudent way of thinking built on common sense; behind every successful economy, every permanently successful economy, lie people and families who think in this manner. Hungary has now moved into this era, I think.

GIK: Another important criticism is that development projects are mainly realised from EU monies and within the framework of state investments. It would be good to somehow stimulate Hungarian enterprises and their willingness to get involved. And, of course, we also know that these surtaxes of which you said two weeks ago that there is no date for the moment for when these special taxes will disappear from fiscal revenue, are preventing some of the biggest taxpayers from investing further in the private sector and from creating jobs, and they are not investing in new technology.

VO: As things stand, investment increased radically in the third quarter and foreign research and development centres have been established here in Hungary, meaning that it is not only assembly units that are behind the economic growth, but also higher added value-creating jobs, work opportunities and investments, and there was an announcement of this kind only yesterday. We are connecting to the world's work distribution at an increasingly high level. It is important that we don't become the world's unskilled labourers, but instead its skilled workforce, and later the world's engineers and research engineers.

GIK: What will be moving the Hungarian economy forward in the coming months and years? What will be its engine? That certain domestic consumption, for which a significant or perhaps multistage, but nevertheless significant wage increase is essential? Could this be one of the central aims or central issues of the upcoming years?

VO: I think in much simpler terms.

GIK: A wage increase them, to put it more simply.

VO: Growth in Hungary is achieved if people want to work more. And people want to work more if they see that it is worth doing. The Hungarians are an industrious people. There are nations where this is not so clear, but in Hungary the situation is that if things opportunities open up, if people see that they can do better if they work more, then they are prepared to work more and better. They just need to be left to their own devises instead of regulating them and proscribing things for them, instead of introducing silly regulations and making labour laws more bureaucratic for their protection. This is no longer the case in Hungary, luckily. And we need a tax system that makes is clear that if people work more, they will end up with more money in their pockets. This is the engine of economic growth in Hungary, I think; this is the spirit of the age, the public mindset; this is the survival instinct, the Hungarian survival instinct.

GIK: There is something else, and we can close the subject of economic growth after this; I'd like to ask you about family tax benefits. These are expanding downwards now, aren't they, meaning they will now also became available to people who weren't eligible for them until now. But you always seem to forget, and this is very important, and I could be asking you this based on my age, the reason why people in their twenties and thirties don't have children. Most probably because they have studied or are studying. And what is required for more babies to be born? Nest-building, the chance to finance the building or buying of a home, creating a secure background. Out of the qualification or out of the degree that people have acquired instead of having children, and it also requires that it be easier to get ahead with a degree than with a well-known surname.

VO: That's right, while of course people with higher education are important and a country lives off its knowledge, and people with more knowledge, such as people with university diplomas, are especially valuable to a country. But it is also the case that not everyone will become a university graduate. There will never be a country, not even in Europe, in which the majority of people have degrees, and so our attention shouldn't only be centred on them. We need to take care of everyone, and especially those who are prepared to work. In my opinion, the Childcare Allowance Extra programme we have just launched, and which allows families to have one, two, three children and work without losing the benefits they are eligible for, can be a great help to young people. I have high hopes with regard to this issue. The studies, based on which we analyse the way of thinking of Hungarian society, show that the most important thing for Hungarians is the family and children. We are a people with a very family-centric and child-centric way of thinking, and this goes for young people too, and we shouldn't believe that things are any different. It can be proven in black and white that the most important thing for young people is the family, and when we ask them what their plans for the future are, then it transpires that they usually plan to have one or two more children than they eventually end up having. In recent years we have analysed the question of what needs to be done to enable people to have as many children as they would otherwise like, and we arrived at the answer that decreasing public utility charges is the first key issue. If young people feel that they cannot provide sufficiently for a child, they will decide not to have it, because the Hungarians may be a family-centric people, but they are also a responsible people. Families also need somewhere to live, so we need a home programme so that they feel that children can be born into a suitable home, and they need a guarantee that they will be able to continue working while raising their children. This requires two things: firstly a system of institutions for child care, for community childcare and possible community child raising, such as nurseries and kindergartens, and we are building these at full steam in Hungary, and we need good schools, and this is why we introduced the all-day school system, or have at least made important steps in that direction. And it requires suitable salaries and a tax system that doesn't take money away if you earn more, but leaves the money with you. These building blocks are now all available, roughly speaking, and the house is beginning to take shape, and I very much hope that we will soon be able to remove the weight that is hanging on the shoulders of every Hungarian. We are an endangered species; we are becoming fewer and fewer every day; there are more funerals that christenings and consequently, until we reverse this tendency, no matter how well we might live, the Hungarian nation, both its individual members and together as a whole, is not safe, and we are in fact in serious danger.

GIK: And now to change the subject to the financial utility charge cut, have you seen today's papers, and in fact there was already an article about it yesterday, that it would seem that this financial utility charge cut may end up being an illusion, because what the right hand gives will be taken away by the lest, and although we may be able to access our own money free of charge, the banks have begun to increase the prices of other services.

VO: Look, similar doubts have emerged before every measure we have ever introduced. When we introduced the bank tax, worries emerged that banks would transfer these increased burdens onto their customers; when we introduced the reduction in public utility charges, worries emerged that the multinationals would be able to dodge it in some way. How should I put it, one cannot achieve a victory in which the red carpet is rolled out before your feet, and you walk down it elegantly, there's triumphant music playing and people sprinkle rose petals on your head. Our profession and real life is not like that; we need to fight and work hard to achieve every result. Questions such as this will crop up I'm sure, but the country's legislators and Members of Parliament, the country's leaders are there to beat back such attempts. We have beaten them back on every occasion in recent years, and you can be sure that we will be able to do so again; we will defend the financial public utility charge cut.

GIK: Let's move on to the NAV [the National Tax and Customs Administration] case. We're not really sure what we have in front of us here, because we don't know any concrete facts. A former employee has come forward claming tax evasion in the hundreds or thousands of billions of forints. The official investigation, and perhaps the green paper too, will reveal whether what András Horváth knows or brings up as proof are just the dream headline of the tabloids or will in fact uncover the political scandal of the decade. What is certain is that if what he ways is true, then the political responsibility goes back several terms. Was the Government aware of the information András Horváth had at his disposal, because he claims to have sent it to prominent Fidesz MPs.

VO: Everyone in Hungary knows that there is a high level of VAT fraud. If you take a look at the decisions we have made over the past three years, they all reflect on this well known fact, which is public knowledge. Estimates differ as to how many hundreds of billions in VAT is stolen in Hungary partly by speculators, partly by retailers, and partly who God knows who else, but certainly be people who do not respect the law. The reason we introduced reversed VAT in the cereal trade was because there was a high, a visibly high level of fraud there, and fraud that went beyond our borders. We introduced a system whereby VAT within the cereal trade must be paid within a reversed system, a secure system. And now we have introduced, or rather have attempted to introduce, a similar system for half pigs and live pigs, but it was not allowed by the European Union. And so we had no choice but to introduce a more risky solution of reducing VAT. We have received many reports of similar fraud within the sugar industry, and we have asked the European Union to let us introduce reversed VAT with regard to the sugar trade.

GIK: Prime Minister…

VO: And so what I am trying to say is that Hungary is grappling with the problem that there is a high level of VAT fraud, and this is also the reason we introduced a system whereby cash registers must have a direct online connection to the tax authorities; our Government is continuously trying to reduce the level of tax fraud, and indeed so have previous governments.

GIK: But this is not what's new in András Horváth's story, or whatever he's saying. You're right, and we have spoken about this before, we have been discussing the issue, the European issue of VAT fraud for some time. What is new here is that the NAV is turning a blind eye.

VO: This is where we are awaiting concrete information. All perpetrators of tax fraud should be behind bars. People who evade taxes are stealing from the community. Tax fraud sounds very intelligent, but in fact it is simply stealing. Instead of giving the community the money it is owed, someone decides to break the law and keep it: that's what tax fraud is. People like that should be put in prison. The job of the NAV is to act to stop people like this. And anyone with any concrete knowledge of such activities, especially if they are part of that group, meaning they work for the tax office, must report it not only to the NAV, but to the police and to the prosecutor's office. This is what I expect from all civil servants, and if someone feels that this is not happening, then we will take the necessary measures while making the concrete facts public. And so we are awaiting the concrete facts.

GIK: He did report these issues apparently, we will undoubtedly learn more later, but my question was, did he send these documents to leading Fidesz politicians?

VO: We are not aware of any facts at this moment, there are no, we are not aware of any documents, because we do not know any concrete facts. I am waiting for someone to say such and such a thing happened in such and such a way, and then such and such a company did such and such a thing. This is something I can get things moving on, because we can then immediately begin prosecutionary proceedings. What I can do in reply to common problems is to move to get legislation amended, such as the measures we introduced to combat VAT fraud that I mentioned a little earlier.

GIK: You said that reversed VAT could be the answer, but that Brussels won't allow it. On what grounds doesn't Brussels allow it?

VO: My apologies, there are places where it is allowed, and places where it isn't.

GIK: So their explanation was, would you please be so kind as to reinforce the monitoring capabilities of the NAV yourselves?

VO: It could still allow it despite that. The reason it will not allow it is because European trade is rewriting national borders, and they think that if a country protects itself, then tax fraud will move to other countries. But the solution shouldn't be to take the instruments away from us, but instead it should be to introduce reversed VAT in other countries too, and then the advantages and disadvantages of European expansion will be the same for every country. I think the European Union is following a misguided policy by not allowing us to introduce methods that have already proved themselves in some areas to other areas.

GIK: 1158. This isn't a date, but the number of cash registers that have been connected to the tax authorities. You have said that one of the solutions to the problem could be the introduction of cash registers that are capable of maintaining a direct link to the tax office, but this is only one half of one percent of the total number of cash registers. What is taking so long?

VO: Nobody knows the answer to this yet, because cash registers that have the technical characteristics set down by law are available in practically limitless numbers. I think the reason is that we are Hungarian, and accordingly we leave everything to the last minute, meaning that if we can get something done on Monday, but are still within the deadline on Friday, then we will do it on Friday, and this can be clearly seen when it comes to traffic at public offices, but with shopping too. There's a deadline. Everyone needs to switch systems by 1 January, so I'm sure that retailers will get things moving within the next few weeks and this number will increase.

GIK: Let's summarise this schedule in a few sentences. The State Audit Office is investigating, the NAV will of course review its own structure, there may be a need for reversed VAT within the sugar industry, and there will for example be a secret service hearing, which Fidesz politicians will attend.

VO: What I would like to first of all say is that there is no need for any kind of extra investigation. This country is working in an acceptable manner, and this is true for its every single segment, although of course there is room for improvement with regard to how it operates. I do not support any kind of campaign. I repeat, we are waiting to hear the concrete facts, and in view of the facts that do emerge, the state of Hungary will take the necessary action taking into account the fact that the perpetrators of tax fraud should end up in prison, but this requires concrete facts. I can't do anything with information like things are going badly in general, people generally evade their taxes, state authorities aren't doing a good job in general, or they are sometimes complicit to fraud; I can't remedy the situation with information of this nature. A situation I can remedy is one that includes concrete facts, and I can promise everyone that we will remedy situations of that kind immediately, because I repeat, our view is that tax evaders and people who commit tax fraud should be behind bars.

GIK: Let me ask you about an issue that doesn't involve the Government's daily work; we have spoken a lot about budget planning, debt restructuring and wage rises, but I am reminded once again that the weather may cause us a lot of work again; winter's coming, the snow is coming, and there was a period during this year, and when we look back on 2013 I think it was one of your most important tasks this year, protecting against the flood, the flood this spring. What I'd like to ask you is whether at this time of the year, and in fact I was talking to György Bakondi [Director General of the Disaster Management authority] just half an hour ago here during the programme, so the question is, at this time of the year and next to your many other tasks, are you taking steps to ensure that there will be no problems in the spring; is construction underway?

VO: Well, first of all the Government has already dealt with the issue of preparation for the winter; the Minister of Interior has reported to us as requested, and he has ordered a monitoring of the level of preparedness.

GIK: Was there also a rehearsal?

VO: Yes, that's what we mean by monitoring; checking to see how well prepared the relevant state organisations are for the winter, because winter can often mean a lot of snowfall, and that can mean floods in the spring. And so I think we are prepared for the worst. This past year, or rather this passing year of 2013, has increased our self-confidence, because this was the most serious flood every seen on the Danube. Similar floods carried people away and caused dozens of fatalities in other places, but Hungary succeeded in defending itself. And in addition to providing us all with the feeling of a job well done, this also increases our self-confidence, and so it would seem that Hungary has the capability to avert humanly estimable, foreseeable natural disasters. And in fact it was I who ordered the Minister of Interior, rather than fining farmers in what I think is sometimes an unduly manner, to be so kind as to put that energy towards preparing for the winter instead.

GIK: During these past minutes you have been listening to Prime Minister Viktor Orbán on today's "180 Minutes" show. Thank you for being here and sharing all this with the listeners of "180 Minutes".

(Prime Minister’s Office)