The Central Statistical Office (KSH) has published an inventory of more than 100 pages about the previous year. We have browsed through the sea of numbers for our readers, and beside the well-known results we found some surprising data.
The Hungarian National Bank (MNB) assessed the private assets held by the nation’s households as HUF 37,000 billion at the end of 2014. This amount increased by 8% within one year. Stocks and shares held the strongest position among the assets with 39%, their volume increasing 11% on average over 2013. Cash and savings were represented with 29%, a growth of almost 5%.
Reallocation of deposits
The amount of deposits by domestic financial institutions decreased absolutely, while many Hungarians shifted their investments to foreign financial institutions (+15%). The volume of cash assets grew 18% (!) to HUF 3,100 billion at the same time.
Experts think that there is a close relationship between all this and the transactional tax. This compulsory fee invented by former minister of national economy György Matolcsy tempts Hungarians to use methods of medieval character in the times of electronic money exchange. Because Hungarians are as rich in terms of ideas as they are poor in terms of money. As every kind of electronically completed transaction is taxed, cash transactions are celebrating a merry renaissance.
It’s interesting to see that Hungarians were rebuilding their “security reserves” in 2014 more and more: Payments to life insurance and pension funds increased 8.5-9.5%, with HUF 3,500 billion set aside for retirement provisions.
The amount of securities increased 11%, including government bonds, which actually increased 17%. The state also managed to move savers from purchasing discounted treasury bonds, which are classified as current investments with a maturity up to twelve months, towards purchasing government bonds, which have a term of one year or more. Short-term securities still held 57% of the portfolio assets; however, investments in long-term securities increased ten times as fast, by 41%, to be exact.
Pitfall of foreign-currency loans dodged
In the meantime, private households had a debt of HUF 9,100 billion. People pulled their belts even tighter and managed to decrease their debt hill by an absolute 1%, and even by 4.5% if we only take foreign currency loans into account. In reality people were making an even greater effort to reduce their debt but this effort was counterbalanced mostly by the weak exchange rate of the forint.
The government and the National Bank once and for all dodged this pitfall at the beginning of 2015: It will be interesting to see how the private assets of citizens will change after the settlement with the banks, which was ordered by law, and the conversion of the foreign-currency loans into forint-based loans.
MNB predicted that repayment rates will be decreasing by 25% on average, and the currency risk will be eliminated. According to the first estimates of independent financial experts, banks had to suffer losses up to HUF 1,000 billion; MNB corrected these assumptions later to a net HUF 600-700 billion.
The coming months will show whether the citizens will look at this present as only compensation for the long years of losses they had to suffer and will keep on eagerly concentrating on the repayment of their loans, or maybe more and more of them will decide to use the unexpected playroom to realise deferred consumption, after the many years of starvation. The net saving in 2014, however, amounted to HUF 1,882 billion, or 5.9% of Gross Domestic Product (GDP).
No one should have any illusions about the financial situation of the broader layers of society. By the end of 2014 the loans for 115,000 flats were in arrears and there were almost 10,000 foreclosures during the year. Four fifths of the seized houses were taken over by the state (or to be more precise, Nemzeti Eszközkezelő Zrt. – the asset management authority). Most took place in Budapest and its agglomeration.
Housing in the paternalistic state
Compared to the number above, the 8,360 new flats built in Hungary in 2014 looks quite measly. However, this number is 15% up on 2013 – residential construction is showing an upwards trend for the first time in many years, starting from a depth that has been experienced in Hungary before only in times of war.
Eight and a half thousand flats in a country estimated to hold four million households; one fifth of the volume of new buildings in 2008, the year of global economic crisis. If we look at it statistically, this means 2.4 residences for every 10,000 citizens in the poorest region of the country, northern Hungary.
In the capital including its agglomeration this number is 12.3 residences, which corresponds to about the pace of modernisation in Berlin. So Hungary’s central area has nothing to be ashamed of, not even mentioning the booming region of western Transdanubia, where the same rate grew from 13.0 to 15.7 residences for every 10,000 citizens between 2013 and 2014
In the meantime, the authorities have issued 9,630 construction permits. This proves that the growth trend continues, with a dynamic caused by the weak base interest rate, which will not remain feasible in the long term.
As a reminder, let’s take the rule of thumb according to which the country would need 40,000 new housing units built each year in order to keep the housing stock at a constant level. Following the political turn this goal was never achieved – in the years of the socialist planned economy the state dealt with this exercise quite simply by building vast housing estates made of concrete blocks.
Most of us probably think that those days are gone for good. However, that would be too easy. The members of the Orbán government, which is usually regarded as national-conservative, were socialised in socialism once. A paternalistic state should not be that strange for a prime minister who lets his National Bank governor scatter free loans among the people. In the third phase of the loan program for growth the construction of housing could indeed be defined as the main goal.
Why so much ÁFA?
The development of private welfare can be measured not only on the housing market, of course, since not everyone has enough savings, wealthy relatives or a credit-qualified job to venture into building a house. For most people the eventual choice will be spending the money they earn in retail.
As we explained in the first part of this short series (“Playing around with billions”, The Budapest Times, April 3-9, 2015), the father state managed to earn HUF 3,000 billion only from value added tax (ÁFA). This is 8% more than in 2013, and all that in an environment with deflation!
The revenue from excise tax also increased 7%, although the (legal) tobacco market shrank by more than one quarter, for example. Taking a look at the retail statistics will explain why the ÁFA revenues are flowing in so diligently:
In 2014 the retailing volume grew 5.2% in total. Fashion retailers experienced a real boom (+15%), the turnover in manufactured products grew by one tenth and nearly 6% more fuel was traded than before. The growth dynamic on the car market doubled against 2013 but even so it only managed to reach a modest 3%.
(To be continued…)