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Apr 11, 2016

PM Orbán to OECD: ‘What we needed was a total renewal of the country’

Prime Minister Viktor Orbán addressed the Organisation for Economic Co-Operation and Development (OECD) on April 7th, 2016 in Paris, recalling the conditions that lead to the IMF bailout in 2008 under the previous government and the steps that his government took to turn the economy around.

 

Here are a few key quotes (see full of speech below):

 

“We had a long discussion in 2009 anyway – just recall in your memory – with your Secretary General, when I said: “Reform is not enough, revolution is too much. What we need is a total renewal of the country.” Don’t say “reform” – that was my request to him – say more than that, but less than “revolution”. So we found out a word: “renewal” of the country; and that is exactly what we have done. Data from the OECD also shows that our rate of economic growth since 2013 is significantly higher than the EU average.”

 

“Hungary is also one of the fewer than half a dozen European countries which have been able to reduce the ratio of debt to GDP. Meanwhile the rate of employment, which was one of the lowest in Europe, has been increasing steadily, and is now close to the EU average. We are one of the few OECD countries that have been able to increase the employment rate, and we have achieved one of the largest reductions in unemployment. Now it is six per cent – we started at twelve. Our employment rate is now higher than its pre-crisis level.”

 

“Our results – looking back over the past five years – I think are due to four factors. Fist, a strict fiscal policy aimed at balance – no compromise on that. Second, a new taxation system. Third, the development of a work-based economy and society; and fourth, which is the most important one: political stability. Which provides the stable background for political leadership.”

 

Address by Prime Minister Viktor Orbán at the OECD

Paris 

April 7, 2016

 

Thank you very much, Secretary General,

 

If I was informed correctly, we have not more than one hour for that meeting. I have a well-tailored, detailed and boring presentation for you today, how good we are, and I will read it up to you – as short as possible – and then I would like to spend as much time as we can for discussion. We have a traditional concept of democracy which is based on arguments and discussion. Therefore I would be very happy to be involved into a dialogue instead of to present a long speech on something. But prior to my boring presentation, may I just have some personal remarks? First of all, thank you very much for the invitation. It is a privilege – not for the first time – to be here, but at the anniversary of twenty years of Hungary joining the OECD, it is a fine occasion to be here. Thank you very much for accepting us here again.

 

The second is a personal remark. I am a member of the Hungarian parliament from the beginning of the new democracy, which means from 1990. There are only five members of the Hungarian parliament who constantly had a membership in the Parliament from the first moment till today. The finance minister who is here with us today is another guy in that limited club. The second personal remark is that now I am working the tenth year as prime minister of my country. I started in 1998 first time for four years. I was 35 years old at that time, the youngest in our history. And then I lost in 2002. Then I spent again eight years in opposition, and I came back in 2010. Altogether, I spent sixteen years in opposition and ten years in government. It is quite rare in the European politics today. It is a traditional approach on behalf of Hungary because we have to make a decision very soon when you make a decision about your profession: will you become a servant of your nation – as a politician – or will you go into business or somewhere else. There is no zigzag. We decided who are sitting here, like the finance minister and me, and some other guys in the government to serve the nation as politicians. So we will stay. Possible I will not be able to win the next election. The sights are good, but anyway, you know politics is politics, so we can lose. But you can be sure that later I will come back again. We will be here. So it is an eternal story, I may say. It is very important to understand in my presentation, that we have that approach. It is not – you know – to spend some years in politics and living, and that is all. It is a lifelong commitment, which is a traditional approach of the Hungarian politicians on that profession, on that mission. Those are the personal remarks I would like to start with.

 

Secretary General, the last time I came to the OECD was five years ago, at the end of May 2011, in the year the organisation turned fifty years old. This year we are celebrating the twentieth anniversary of Hungary's accession to the OECD. Hungary has changed a lot over the past twenty years: a country struggling with the problems of transition to a market economy has become a reforming country pursuing opportunities to close the gap with other countries. If I see correctly, similarly, the OECD has undergone major changes: the restricted "rich man's club" of the past is now a global exemplar and, as the Secretary General often says, it has changed from a “think tank” to a “do tank.” If we were looking for a common denominator in these two stories, then we could boil it down to one word, and this is: courage. People don’t like to reject the customary approaches which are seen as tried and tested, even when it becomes clear that those earlier measures and concepts are not part of the solution any more, but part of the problem. In this case, if we continue to do the same things in the same way, it is folly to expect different results.

 

To set about doing things differently requires courage. So this is what we have in common, and this is what we have learned from the OECD over the last two decades of cooperation with them: we have been brave enough to seek out new paths and set out on them.

 

Ladies and Gentlemen,

 

Hungary has been able to conquer the crisis, and is now able to produce economic growth at a rate twice that of the EU average, because we have boldly employed new measures which many people perhaps regard as unusual. But “in unusual times, let us not be afraid of using unusual measures.” There is a saying in military circles: “If the map is bad, let the terrain guide you”. Hungary surveyed the terrain in 2010, and saw that all the earlier maps were wrong in some way. To do this we had to follow unexplored routes and had to use unusual measures. That is why we like to be member of the OECD. Your power is one of deep knowledge and restraint, which helps those countries who are courageous enough to look for new tracks, new solutions and new methods. And we appreciate that you do not strive for a political role. Many international institutions like to declare themselves as neutral politically. But the declaration – it is obvious – is not true. Those international organisations who started in that way at the first moment are very suspicious. But you are exceptional. Electrifying exception in that respect. Which means that you do not strive to a political role – that was my first experience with your cooperation – and you do not seek to take control of any country; and we respect this. This is why your work is respected and recognised in Hungary so highly.

 

Ladies and Gentlemen,

 

To begin with, I would like to briefly outline what has happened in Hungary since 2010, and whether any conclusions can be drawn from this. The question is a valid one, because back then we started from a very bad position. We were the first country in the European Union to approach the brink of bankruptcy – a worse position than Greece, anyway. All eyes were on us, everyone wanted to tell us, to instruct us what to do, and how to do it. By contrast, today we are in a dramatically improved position – and not only compared to our own former standards, but in an international context the important indicators are showing striking improvement. When we consider this, we are reminded a little of theoretical scientists who, when examining the anatomy of that creature known as the bumblebee, declare that the rules of biology and aerodynamics dictate that it is unable to fly. But then, after all that, they see that it can fly – and not just anyhow. But let us return to the starting point. Since we are in a place where numbers matter, let me list a few important indicators. There was no economic growth back five years ago: nothing. Government debt was lodged stubbornly at over eighty-five per cent; inflation did not want to fall below six per cent; the budget deficit had taken off, jumping to seven per cent; unemployment was at nearly twelve per cent. Out of ten million Hungarians, fewer than 3.7 million were in work, and only half of those – exactly 1.8 million – were paying tax. So on the revenue side we had nothing. Our spending was higher. We were deep in debt: the Government, businesses and families. This is why, when the 2008 financial crisis broke, Hungary was the first country in need of an IMF bailout package. Not the Greeks started that: the first were the Hungarians.

 

Ladies and Gentlemen,

 

That is where we started from. Even now we cannot be satisfied. We cannot say that we know the secret recipe for crisis management. But we have brought the Hungarian economy to a condition which is better than any in our modern history. We have achieved important results. Our economy is growing, while at the same time the indicators of stability are well centred. In recent years Hungary has created stable macroeconomic foundations, and has begun the necessary reforms, building in part on the recommendations of the OECD. We had a long discussion in 2009 anyway – just recall in your memory – with your Secretary General, when I said: “Reform is not enough, revolution is too much. What we need is a total renewal of the country.” Don’t say “reform” – that was my request to him – say more than that, but less than “revolution”. So we found out a word: “renewal” of the country; and that is exactly what we have done. Data from the OECD also shows that our rate of economic growth since 2013 is significantly higher than the EU average. Over the last year the budget deficit was around two per cent, and the trade balance and balance of payments showed outstanding surpluses. Hungary is also one of the fewer than half a dozen European countries which have been able to reduce the ratio of debt to GDP. Meanwhile the rate of employment, which was one of the lowest in Europe, has been increasing steadily, and is now close to the EU average. We are one of the few OECD countries that have been able to increase the employment rate, and we have achieved one of the largest reductions in unemployment. Now it is six per cent – we started at twelve. Our employment rate is now higher than its pre-crisis level. Foreign direct investment is rising, and growth in industrial production and its rate as a proportion of GDP – approximately thirty per cent – which are outstanding by European standards.

 

Here I would like to briefly mention that we have also managed to achieve results outside the area of macroeconomic indicators. I could also say that we have created order in the background – or the backyard. We have defused time bombs such as foreign currency loans, we have launched the homebuilding programme for families, and we have introduced a new system of family support. I would also like to highlight the most recent development of our economic success story: after years of hard work and courageous – but responsible – fiscal policy, we managed to repay (yesterday!) the final instalment of the IMF bailout package of 2008. So, now we are out. We are not any more in the programme, everything is paid back.

 

Ladies and Gentlemen,

 

At times like these the question of how this was achieved is always raised. How did Hungary achieve such a complete turnaround within five years? And especially when Europe as a whole was struggling with recession? Our results – looking back over the past five years – I think are due to four factors. Fist, a strict fiscal policy aimed at balance – no compromise on that. Second, a new taxation system. Third, the development of a work-based economy and society; and fourth, which is the most important one: political stability. Which provides the stable background for political leadership. Without going into too much detail, let us take a closer look at these four factors. By the end of the current government term we want to ensure that the budget deficit in Hungary is reduced to zero. I have had a long discussion with the finance minister on that, who is not very happy with that task – he likes it of course – but it is very difficult to manage it in the forthcoming two years. But…! By this we mean that the Government’s current revenues and expenditure would be balanced and a deficit would only arise, at most, as a result of new investment projects. This is the approach I would like to introduce to the budget policy. We are not far from this position, as the primary budget balance – before the payment of interest – is already positive, in surplus. Overall, while in 2010 market analysts regarded Hungary as being one of the most vulnerable of the emerging market countries, today the same people see it as being among the least vulnerable states. This view is now greatly supported by the fact that we managed to put the IMF bailout package – as just I have mentioned – behind our backs.

 

Some remarks on the new taxation system. That was the most controversial element of our new policy. We did not concern ourselves too much with theoretical discussion on the value of austerity versus growth or economic stimulus, because we know that without a healthy budget balance there is no healthy growth. That is a starting point for us. Instead of theoretical debate, our starting point was that the population could not be expected to shoulder the burden of the crisis. A share of the burdens needed to be borne by those sectors which were partly responsible for the crisis, or which benefited from debt-fuelled growth in the period leading up to the crisis. That was a totally new approach to the whole tax system. Thus we were the first in Europe to impose a tax on banks and some other sectors. But, as we promised when we introduced these special sector-based taxes, we are beginning to gradually reduce them as the economy strengthens. That is the reason why we are coming back down with the banking taxation. Now we are not at the highest level at this moment, and we will reduce it next year and so on, having an agreement with the EBRD.

 

Meanwhile, certain taxes have become widespread and accepted across Europe. Something which was considered as unorthodox in Europe five years ago now is quite well known and followed. The only difference between us and other countries is that we have openly declared that a new equitable system needed to be developed because of the crisis. May I just mention here that the income tax in Hungary is a flat tax: fifteen per cent, flat. Absolutely flat, no exception at all. And we don’t have inheritance tax: zero, it is deleted. The corporate tax for small and middle-sized companies is ten per cent. The biggest companies pay nineteen per cent. All in all, the public is convinced now that there is a sense in more effort, because it has a financial result in this package. That is the reason why we are so much committed to the lowest income taxation – this is the policy of our government, and we are just discussing whether we can even decrease it next year.

 

The third pillar of crisis management, Ladies and Gentlemen, Secretary General, is the development of a work-based economy and society. This was both a political aspiration and a necessity. A necessity because the Hungarian economy was crippling under immense social expenditures related to unemployment. You probably know – or at least some of your countries know – the expression “I’ll work in unemployment”, which means that I will get the unemployment benefit, then I will go for another, untaxed, job. It was a general approach in Hungary.

 

Nowadays hardly anyone can do this in Hungary, as unemployment benefit is only paid for three months. Instead of giving people an incentive to stay unemployed, we focused on how we can get them back to the workplace. In other words, we offered jobs instead of benefits.

 

We in Hungary call this work-based economy and society a “workfare society”. We don’t use the term “welfare society”, because we think that is over. What we instead use is workfare society, which is nearly identical to the longstanding and successful system which the Germans call a performance-based society. One such element is a tax system – as I just mentioned. But another element of our system is flexible employment legislation. In 2011, in the early days of the Government’s term, we transformed the Labour Code – we discussed it with your Secretary General also – making contract termination less difficult, so that the recruitment of new employees can be easier and more acceptable for businesses. It is no accident that among EU Member States in the OECD today, Hungary has the fourth most flexible regulations. Also in line with OECD recommendations.

 

The third element can be identified as the development of the new vocational training system. We are not satisfied with that at this moment, we tried to copy what the Germans have done, but you know, it takes time. We have to make a very brave political decision, because education was united in one structure, headed by the education ministry. But because of the culture, the education ministry was so alien to vocational training, we separated it: we cut it into two halves, and vocational training went into the finance ministry, at the economy ministry. The economy ministry has the responsibility to manage the vocational training system. Lots of discussions, even some strikes in Hungary and public discontent, lots of professional discussions. But I hope soon or later it will be managed in a fine way. 

 

Despite high unemployment, in many cases we were faced with a lack of good specialists, and so we set about the reform of vocational training – whatever the political price of it. And may I just mention here as an element of the workfare society the introduction of a public works system. The essence of this is to provide employment through public work for those who have been outside the world of work on a long-term basis, for those – secondly – whose extremely low skill levels have resulted in their exclusion from the labour market, and third, for those who live in disadvantaged regions. Perhaps the public work system is not profitable in terms of simple cost-benefit calculations. Definitely not. But for those who participate in it, the fact that instead of living on welfare benefits they are useful members of society definitely increases self-esteem, and pays back later on the labour market. Of course we know that this solution is only a temporary one, so we aim to get more people out of the public work system and into genuine market-sector jobs in every way we can – especially through winter retraining programmes.

 

Finally, I must mention what is one of the most important elements for us, and one of our government’s central ambitions: that is called family policy. Like a number of OECD member countries, Hungary is struggling with the problems of an ageing society and, in the face of demographic questions and their effect on the labour market, we ultimately have to find an answer to that challenge. And we ultimately have faith in the family and family policy. Very questionable. Lots of discussions. Sometimes we don’t know whether we are wishful thinkers or not. But we still insist that we have to find answers to challenges on the basis of family policy. That is a personal political belief behind the economic decisions. But I have to accept that the outcome of that answer to the ageing society challenge is questionable. But we still insist on it, and I would not like to involve new elements like migrants or other issues, just because I think that would be the easier way. And if you have an easier way to find an answer, you never look for a more difficult one. And family is a more difficult one. But probably in the long term it is better for society than to get some help from outside.

 

This is why we have introduced the family-based tax system, which offers significant tax benefits to those in work, based on the number of children living in their family. In practice, people in work, and in families with three children or more, no longer pay any personal income tax in Hungary. Another element of family policy is that the balance between benefits and responsibilities needed to be restored. A very highly disputed question. The richly subtle English language talks about the “benefit culture” and the “something-for-nothing culture”, in which families seek to live off welfare benefits alone, without taking on any social obligations in return. That was quite often in Hungary. Therefore, among other things, we have strictly tied child benefit to children’s school attendance. If the kids are not in the schools, no benefits. Zero. We tried to combine freedom, family policy and responsibility in one system. This creates the opportunity for those children to improve their future position in society. May I just say that in Hungary, from three years of age, each kid should go to the kindergarten or to the school unless the parents ask the local government to let them not to do so. It is the freedom of families with kids between three and six years old not to send them to kindergarten, but you have to ask for that. But all the others have to go there. Because we have high numbers in the gypsy community, this is the most important thing in our integration policy. Because if you are not able to integrate them at the age of three years old, to start the process, later on it is very difficult. So the integration policy of Hungary is very much based on that new development. And I have to say at the same time that all kids in kindergarten are supplied with food for free. That is another challenge on the poor families side of the political system. I think now we have an integration policy, a family policy, education policy and policy for poor families combined in one system – one which probably will work. When you have that kind of system, it takes time to say whether it is fruitful or not. But now we have at least launched that concept, and I think in two or three years we can have a conclusion on whether it works and in how many per cent.

 

And finally, Ladies and Gentlemen, to maintain all of this, it is necessary to have political stability. We tend to forget that in the world today political stability is of great value. Similarly we tend to forget that politics – within the framework of democracy – is an ongoing competition for leadership. In other words, those who win the democratic competition for leadership must lead. This is what voters and citizens expect them to do. In Hungary the Government was returned with another two-thirds majority in the 2014 parliamentary election. This was after it carried out radical change which was seen as not just a series of reforms, but a comprehensive programme of renewal. So, after very brutal and drastic reforms or renewal, four years doing that, through lots of controversies and discussions, because of the leadership our government was able to acquire again a two-thirds majority as the outcome of the parliamentary election. Which is a very promising and encouraging sign for all political leaders in Europe. If you do nothing you have less chance to survive than to do even something “brutal”. Because leadership is what the people need the most in this moment in Europe, even if it is controversial on the social side.

 

In summary, after having successfully dealt with the crisis and having set the economy on a growth path, we must now face another big challenge; that is what we describe as “the challenge of catching up with others”. For centuries Hungarian history has been about nothing else but how to catch up with Europe's most fortunate Western half, to which Hungary always wanted and did belong to, but too often in its history was artificially separated from as a consequence of wars or occupations. Being part of the European Union and NATO and OECD, the possibility is in our own hands again. The last time we came as close to this goal was in the last third of the nineteenth century. Anyone who has been to Budapest and seen the buildings left as a legacy from that period will know what this means. I truly hope that now we are on the threshold of a new period of convergence, and in this we are counting on the specialist advice of our travelling companion over the past twenty years, the OECD.

 

Secretary General, thank you very much.