Balance of the state budget
Eurostat is doing the Hungarian government a favour. The statistical agency is adapting its methodology to the new ESA 2010 standard, a globally applicable norm that was already used in the United States last year. There is a pleasant side effect: it will make the European mountains of debt shrink, without having to introduce any new saving measures.
This will result, for example, from a higher gross domestic product (GDP), since the amounts spent by companies for research and development and the armament expenditures of governments can be recorded as investments. Eurostat expects the positive effect of the changes to be strongest in the Scandinavian countries but also for Austria and Great Britain, while Germany will do better only on a medium level.
Estimates are that Hungary and Poland will not benefit as much as the other countries on average in the eurozone. Eurostat says the reason is that the investments in research and development are more modest in these two countries than the average.
Help from EU in the year of elections
Still, the methodical correction was well-timed for the Orbán government in 2014, the year of elections. Because last year not only GDP grew, to HUF 29,850 billion calculated at current prices. The revaluation of the so-called “acquisition” of the private pension funds will have a much stronger effect.
As we know, Fidesz simply re-nationalised the private pensions in 2011, winning around HUF 3,000 billion for the state treasury. Among the reasons mentioned at the time was that Brussels did not want to compromise regarding the ongoing excessive deficit procedure. Due to the mismanagement of the social-liberal governments (2004-2010), the country had been in a precarious state of dependence since it entered the EU in 2004, and Viktor Orbán wanted to solve this situation, in order to be able to take a more independent course and enjoy the rich EU funds without taking on any additional risks.
Experts estimated in 2011 that the government – despite its policy of tax increases – would not be able to decrease the budget deficit under 5% of GDP, not to mention the 3% demanded by Brussels. With the money acquired from the private pension funds the issue was cleared from the table; the Hungarian state budget closed 2011 with a unique surplus of HUF 1,200 billion. The Orbán government, unlike its neoliberal predecessors, used the breathing space to take further decisions to keep the budget deficit under the targeted 3% of GDP in 2012 and 2013 as well.
Now the ESA 2010 norm says that the reduction of the budget deficit via incorporating the pension funds would not have been possible. Calculating like this we would get a deficit of 5.6% of GDP in 2011 – but no one needs to be nervous about that now, years later.
The gigantic wealth from the pension funds, making up about 10% of national GDP, would only be accounted in small steps over 35 years according to the new methodology. This division ensures that in future the revenue coming from private assets will be credited pro rata to the credit side.
To put it differently, Orbán might “spend” the wealth from the private funds a second time, providing the government an additional margin of several ten billions each year. At least until Eurostat makes the next correction.
Slight surplus in September too
The state budget booked a slight surplus of about HUF 14 billion in September too. Thus the deficit accumulated from the beginning of the year decreased to HUF 845 billion, or 86% of the annual target. The government targeted a deficit at 2.9% of gross domestic product for 2014.
