22 November 2013

Gábor István Kiss: It's six minutes past eight. Good morning to all you listeners of "180 Minutes"! Thank you for listening to Kossuth Radio again this morning. The Prime Minster, who is currently in Japan, has given our show an interview. We called Viktor Orbán yesterday afternoon, local time.
You have held a lecture and inaugurated a cultural centre and a centre for tourism. And tomorrow you will be meeting the Emperor. What are today's most important decisions; what signed documents do you have under your belt for today?

Prime Minister Viktor Orbán: I will be pleased to say a few words about signed contracts, but first, let me tell you that Mol and a large Japanese company have agreed on setting up a joint venture with 51% Japanese ownership and 49% Mol involvement. It will be founded in Tiszaújváros. And they will be using the product manufactured by the most recent factory to have been inaugurated in Tiszaújváros to produce synthetic rubber, which is greatly sought after by the automobile industry.

How many new jobs, how many new tax-paying jobs will this mean?

I can't tell you for the moment, because the announcement was just made here in Japan, but the two companies will at some time, if they haven't already, also make the announcement in Hungary, because we are talking about companies that are listed on the stock exchange, and the economic details such as the capital investment involved and return indices all fall within the scope of authority of the companies' management. All I can do for the moment is tell you that as the close of a long series of negotiations, the parties have now shaken hand on an agreement.

Japan seems to be an attractive business partner for every country in the world. Partly because if they decide to send one of their large corporations to another country or to build diplomatic relations, then it is almost always a long-term decision. This is how the Japanese operate. But then again, the withdrawn nature of the Japanese people is often mirrored in their economic policy decisions. How do they view Hungary? How do they view the Central European region or the opportunities to be found in Central Europe? What is your experience?

Japan is inhabited by sober-minded people. They think twice before cutting once. This means that every decision is introduced by a period of considered preparation, and if they have established a presence somewhere, then they will stand their ground there until the very last moment. Hungary is also a country of this nature. The level of Japanese investment in Hungary is currently 3.5 billion euros. They are also the biggest greenfield Asian investors in Hungary. Their trade balance is also increasing nicely. I took a look at a few of our food industry products on the supermarket shelves here today. They all state fairly and squarely that they are produced in Hungary. Mangalitza, Pick salami, hone; the list of Hungarian food industry products is long, and the volume of Japanese goods going to Hungary has also increased in recent years. So in summary there is a growing trade. What is significant from a political point of view here is that Japan has realised that although there may be a real crisis within the European Union, we are in the middle of negotiations concerning a Japan-Europe free trade agreement after all, it would be a mistake to view the European region as homogenous, and so in their plans for the future they have separated Central Europe from the rest of Europe. I too have been primarily invited as the current president of the Visegrád Four economic cooperation involving Poland, the Czech Republic, Slovakia and Hungary, to discuss issues relating to Central Europe. This means that Japan has a separate industrial development, trade investment concept which doesn't concern Europe in general, but instead specifically involves Central Europe, and within that, Hungary. It is interesting to note that Japan is realising economic development programmes jointly with the Visegrád Four nations in non-EU European countries such as Serbia, Montenegro and Moldova. We are renewing energy systems in some countries and modernising the healthcare system in others.

There are countless similarities in Japanese and Hungarian economic policy. The Japanese Prime Minister took office a year ago, and Abe Shinzo has introduced similar measures to the one's you have. While reforming the state a monetary policy with the help of the Japanese Central Bank, and we are of course talking about the Japanese economy now, and increasing state expenditure he is attempting to promote private investment and has even promised to increase VAT in Japan. And so I find it easy to believe that you and your Japanese counterpart sat down to discuss various issues in the knowledge that these measures are indeed very similar.

The atmosphere was one of camaraderie, and this is thanks to the fact that in addition to concrete measures, we both believe that the world following the end of the crisis will never be the same as it was before. Meaning it is not worth working so that things can again be like they once were, because they will never be the same again. And accordingly it is worth putting aside the methods and elements of economy management that caused the crisis and instead putting emphasis on new methods, new principles and new economy management solutions. And since this is an untrodden path and similar tools have not been used before, or at least they were last seen among the United States' recipes for managing the big depression in the 1930s, so since these are new methods they tend to cause surprise, interest and often nervousness almost everywhere. It was no different in Hungary, and those who study Japan are observing similar reactions here. There is of course one difference. It would be wrong for us Hungarians to make an error of an order of magnitude, after all the Japanese economy involves one-hundred-and-thirty-something, close to 140 million people and is the world's third largest economy. The per capita gross domestic product is about three times that of Hungary. And for this reason everything that Japan does receives much greater international attention that we do in Hungary. But they are successful and so are we. Many instruments are the same, many methods are similar, but the important thing is way of thinking, that we must find new solutions that are made to measure for the given nation and which may make the given country successful. There are no universal solutions, uniform, community solutions that lead to success. In Europe only the countries that belong to the eurozone can have joint solutions. But the British aren't members of the eurozone, nor are the Swedes and neither are we. There is no economic policy that would be good for Great Britain, Sweden and Hungary, and which would help all of us exit the crisis. So everyone needs to apply an economic policy that is based on their own situation, made to measure their own bodies and is in line with their own interests.

Since we are on the subject of the Euro, the Hungarian press is full of reports of what you mentioned in your lecture at the [Josai] university, namely that it will be decades before it is worth talking about the introduction of the Euro in Hungary. The fact that one has to be minimum Japanese to view this as something new, seeing as you already announced the Government's standpoint on this during the summer, is another matter. To me, it is the explanation that is of greater interest. Because of what you are saying is that there needs to be a similar GDP-proportionate increase in Hungary to that of the large nations within the European Union, and if we accept that this is one of the preconditions for the introduction of the Euro in Hungary, then there is an interesting contradiction here, because the Hungarian GDP is dependent on the Hungarian investments of large corporations from precisely these countries, and the current and often changing exchange rate is one of the obstacles to this. So this is a vicious circle.

I have a different opinion of this from the point of view that if the economy is stable, and if we are able to continue the work that we have begun, then the fact that Hungary is not inside the eurozone will not hinder investment coming from the eurozone countries, but on the contrary, it will encourage it. If this were not the case, then eurozone countries would not outsource their industrial production units or establish new ones in Hungary, but would build new ones at home instead. So the eurozone issue is secondary from the point of view of investors. In any case, the Hungarian standpoint is nothing less than rallying to the standpoint of Poland, who announced during the summer that joining the eurozone is not on the cards for ate least a decade. Poland is Central Europe's largest economy; the Czechs aren't really talking about joining the eurozone at all, and we are on the same wavelength as Poland. so this can be regarded as a Central European position rather than a lone, Hungarian standpoint.

Another solution to this dilemma could of course be the Opening to the East [policy], meaning that the majority of business doesn't necessarily have to be conducted with the eurozone countries. This, however, requires that you should now be talking about the fact that Japanese companies are standing in line to bring their investments to Hungary and create thousands of tax-paying jobs.

Although they may not be standing in line and there is no pushing and showing for the moment, there are certainly encouraging developments. Before travelling to Japan, we signed an agreement with a large Japanese corporation called Takata; they are creating a thousand new jobs in Miskolc. Now there is this new agreement between Mol and Japanese Synthetic Rubber, and I repeat, the level of Japanese investment in Hungary is 3.5 billion euros. This is a nice figure in itself, but I am hopeful that as things start going better for Japan and we become more successful ourselves, this number will increase further. But getting back to your original question, Hungary can of course not change its geographical position. And there is no need to; we have been doing alright here for the past 1100 years, we are happy to be able to preserve what is ours and have no intention of leaving. Accordingly, it is no accident that we are members of the European Union. That is our natural place. We have an interest in the success of the European Union, because today, a highly significant proportion of our economic production - 75-80% - is sold on the markets of European Union member states; that is where we can market it. This is important to us. At the same time, however, this is a highly unbalanced and precipitous state of affairs, and so we must stand on several pillars. Today, 11-12% of Hungarian exports go to non-European countries outside the European Union. These are the door hinges, the key figures of the Hungarian economy. What will change things around is that we want to increase this figure to 33% by 2018, meaning that our exports to non-EU countries outside Europe must increase to reach this figure. This is a very ambitious, strong goal, but it is possible. The world's level of growth and the speed of growth of our export sales make this objective and this date realistic.

Let us quickly go back to Hungarian economic policy. Important new figures have been published this week, important figures regarding the GDP and government debt, and there was a successful bond issue, in addition to which Parliament adopted next year's Tax Act. Let's begin with the latter. The tax system includes no new tax forms, there has been no great reorganisations, so let's start with flat rate income tax. Debate has begun once again in Hungary on whether this is a good thing or not a good thing; on whether we need it or not. Do you still believe in the flat-rate income tax system, and if so, could you tell us how many years you predict the flat-rate system will remain in existence?

First of all, what I can say in general about the economic figures is that the level of economic growth has surprised everyone, hasn't it? There is an increase in real term wages in Hungary, while there is a crisis in Europe. The employment figures are also improving. So in short, I could say that we are making good headway. it would, however, be a great mistake if we became complacent. We have reason to be confident, but we cannot yet be complacent. Much work remains to be done before this economic data and the improving status of the national economy begin to appear at the level of everyday life to an increasingly convincing extent, in the purses of households and families and in the budget of housewives. We must do a lot more work to achieve this, but we have also made progress in this respect, because we have just introduced the Childcare Allowance Extra benefit and are introducing a tax benefit for those with low incomes from the first of January. So form 1 January people will feel that we have made another step forward next year, a step forward for hundreds of thousands of families.

Flat-rate income tax?

My approach to the flat-rate income tax system is to ask what things looked like in 2010. Meaning we shouldn't be arguing about flat-rate income tax, but about the fact that we had a bad tax system that almost pushed the country into bankruptcy. Why should be reintroduce a tax system that almost ruined us? We have finally found another system, which is clearly proven by the facts to be behind our new economic growth. Why should we go back to the old system then? The same people, the same economic policy-makers are recommending the same bad tax system to the Hungarians that almost ruined us once already. Let's stick to the present system, and the results will begin to appear, as we have already seen this year.

How long will the especial surtaxes [e.g. on banks and the energy sector] be include in the tax system? You have already spoken about the fact that the crisis is beginning to pass within the Central European region and these various forms of tax are no longer called crisis taxes, but rather special surtaxes, but these also need to be phased out eventually. The tax philosophy according to which large, profitable companies must also bear the burden of the crisis and the budget, but these companies pay taxes and create jobs too. So the special surtaxes must be phased out eventually.

It would be irresponsible of me to state any date now. Instead, what I can say is that today, special surtaxes and crisis taxes are practically speaking only borne by two large areas. One is the banking system, and what is happening there could be the subject of a long show in itself, and the other is large, international companies who are in a monopoly position, or who to all intents and purposes enjoy a monopoly. In my opinion, monopolies must always be taxed to a greater extent than companies who manage to stay afloat against stiff competition. Thanks, I repeat, are a separate story, because the public is faced with new developments every day with regard to the banks.

Let me ask you about benefits for families with children. There is nothing new to this element of your or your party's politics. This is not the first time that you have made efforts to put families with children at an advantage. But despite this, if we look at the numbers of births, then we unfortunately must admit that those babies just don't seem to want to be born.

Because we have still not done enough. All of our studies show that young people would like to have more children, one average one more child, than they eventually have. And they explain this fact by saying that they encountered such obstacles in the world of making ends meet and trying to make an everyday living, that they decided to have one less child. I view it as my own, personal moral responsibility, and if politics has a calling, then the calling of our politics is to change this state of affairs to enable young people in Hungary to be happy and to have as many children as they want, and to ensure that worry about making a living tomorrow is no longer an obstacle to having children. This is why we have introduces tax allowances for people with low incomes and the childcare allowance extra scheme, and we will be doing a great deal more to help families with children. The Constitution, the Hungarian Constitution doesn't simply speak of family tax benefits; the wording is much stronger, but what we are doing is referred to in everyday Hungarian as a family tax benefit, when it is in fact a family tax. This is in fact not a flat-rate tax, but a family tax based on the fact, as stated in the Constitution, that the income required to raise a child may not be taxed. And so we are not providing a tax benefit, but the fact is that the state cannot take what they have earned away from families, and without which they could not raise their child or children. Of course, determining exactly what that sum of money is and how much funding the Hungarian economy can take, is something that we need to rethink every year when formulating the Tax Act. But the important thing is that we are not giving something back, but rather that the state cannot take this money from families with children to begin with. Accordingly, I believe that the Hungarian Constitution has set down and guaranteed the Hungarian family tax system for many years to come, and nobody will be able to amend these provisions in the near future using constitutional instruments. This means that an anti-family economic policy such as the one adhered to between 2002 and 2010 cannot be introduced again as far as taxes go, because it would be unconstitutional.

In closing, let us speak a little about the problems relating to foreign currency loans. The next step is now in the hands of the judicial system, is it not? Representatives of the Curia, the National Judiciary Office and the Ombudsman's Office met early this week. What I would like to go back to is the question of whether the issue that the judicial system must now decide on is still the same fundamental issue of whether foreign currency loans constitute a faulty product?

Look, I too was shocked by the news that when we introduced the early repayment scheme the banks formed a cartel and they now have to pay 10 billion forints in fines, according to the decision of the competition authority. This is a clear indication that things have not calmed down just yet as far as the banks go. Things are happening here that should never occur in a civilised country. People cannot be treated this way. The Government finally develops a good financial construction to help people who are in difficulties because of foreign curreny loans, a solution, a way out, and open door, and then the banks get together to close the door together.

Yes, they mutually increased the lending rate for forint-based loans. Just to be clear, this fine was imposed by the Hungarian Competition Authority. What will be the consequences, do you think?

All I wish to say is that we are expecting the justice system to take a clear stance on two issues, so that things can finally move into action again. The first thing that we are expecting a verdict, a ruling, on is the question of who must pay the losses derived from the unfavourable changes in exchange rates that customers suffered in relation to foreign currency loans? The people of the banks? Since banks had all professional expertise at their disposal and since they are the stronger, we would like to know whether the judicial system believes that perhaps the banks should be the ones to bear these losses that stem from fluctuations in the exchange rate, as a common sense of morals would otherwise dictate. The other issue on which we are awaiting a clear judicial standpoint is whether it is permissible for banks to one-sidedly modify the interest rate of a loan it has provided in such a way that it would be unfavourable to the person who took on the loan. These are the two issues on which the judicial system should hammer down the posts with the strength of constitutional principles, so that all those involved – people who take on loans, the banks and the Government –can keep to these rules that in future. And then we will find a solution; all we need is clear and honest dialogue. I very much hope, I cannot influence the judicial system, but I very much hope that the judicial system will serve justice to the public.

Is there a deadline for these two answers in your opinion, or a unified deadline for coming to these verdicts?

The Government of Hungary is not n a position, as follows from our constitutional system, to rush the judicial system. But cases such as the recently discovered price fixing, the illegal cooperation between the banks, should all serve to speed up the judicial process. Had the ruling been published yesterday, even that would have been too late - this is my personal opinion. And so without rushing the judicial system I would respectfully ask that they act as soon as possible, at their earliest convenicence.

(Prime Minister’s Office)