The Failure of SzéllKálmán-Plan Reflected in the Budget 2014

The Failure of SzéllKálmán-Plan Reflected in the Budget 2014

In spring, 2011, to demonstrate to the European Union that the country is capable of obviating the excessive deficit procedure, the Hungarian Government announced the Széll Kálmán-Plan, then a year after the Széll Kálmán-Plan 2.0. By scale these represented restrictions amounting to HUF 1,500 billion. In its analysis, the Policy Agenda checked, to what extent the Budget 2014 reflects the commitments made earlier, and in which sectors did the cabinet give up most of its targets.

In 2012 the Government was Still Bold

The cabinet– despite its “warlike strategy” –was obviously worried that the European Committee would not deem the convergence program built upon the Széll Kálmán-Plan trustworthy enough, therefore very determined undertakings were assumed also for 2014. However, some of these undertakings, will surely not return in the next year’s budget.

Perhaps, the most significant step-back occurred in the budget deficit. The cabinet accepted, in April 2012, a descending budget deficit to plan with for the forthcoming years, and among these, for next year a deficit of 1.9% has been budgeted. Given that the targeted deficit for next yearis 2.9%,apparently the political boldness is also slackening and used up, or with the excessive deficit procedure behind our back it is still not so important to adhere to the plans set up beforehand.This entails an overspending by the cabinet with 300 billion HUF, rather than complying with the plansundertaken.

Backing out by the government is more obvious in the light of the public debts. In spring 2011, the principal message of the SzéllKálmán-Plan was to reduce the rate of national deficit at an accelerated pace. In this respect an ambitious target was accepted, according to which by 2014 the rate of state deficit would be decreased to a rate corresponding to GDP 66.7%. However, in spring 2012, the target was more muted, for the same rate was increased to 73.7% again. When this year’s budget was tabled, it turned out that the government gave up its “battle position” even in this field and the rate of state debts compared to GDP is targeted to be reduced merely to76.9%. This means the rate of state budget will be 3,100 billion HUF higher than in 2011.

Fields where the Széll Kálmán-Plan Failed

The “original” Széll KálmánPlan intended to introduce–in some cases near-reform kind – transformation in seven fields,which were further deepened in the second step.Consequently, the two Széll Kálmán-Plans entailed a better balance of approx. 1,500 billion forints. It was at the announcement of the plans, that the Policy Agenda drew the attention to the fact that several elements of the ideas were not firmly grounded, and the majority of ideas were impossible to be implemented. Therefore continuous modifications of the budget were indispensable to satisfy the budget2013. Just like in the two previous years, these were achieved by diverse tax rate increases lacking any long term ideas, which brought rapidly significant revenues for the budget.

The grip of the Széll Kálmán-Plans could have been somewhat released, if the state revenues had increased owing to economic growth. The considerable decline in the vigorous economic performance of 2012 and the minimum rate of economic growth predicted for the current year equally show that the growth of revenues cannot be counted with next year either. This means the measures targeted to be fulfilled in the framework of the Széll Kálmán-Plan will not be possible to be achieved in the next year’s budget either.

At the same time, regarding employment and the pension system, the community transport, and health – as for expenses on medicaments – the government failed to fulfil even its own undertakings. According to the calculations performed by the Policy Agenda, the measure to improve the balance by 300-350 billion forints was also not implemented, thus it does not appear again in the Budget 2014.

Has the Government Undertaken more than it can Possibly Manage or the European Committee was Misled?

One of the primary political objectives of the government was to achieve that the European Union abolish the excessive deficit procedure against the country. By this, it intended to demonstrate its excellence and its ability to slip out of the external “guardianship” and go its own ways.

Seemingly, everything was subordinated to this objective, and fundamentally, the promises madekept outdoingthe realistic market forecasts and expectations. Additionally, the cabinet was unable to accomplish the reforms initiated and flagged out of political interests. Several tax rate increases levied with reference to “emergency” and communicated only as an “adjustment”, the over-taxation of the producing and financial sectors, the achievement of special revenues, the forceful cut back on the expenditures in health and social sectorscharacterised the budget policy during the past years. This is also reflected in the Budget 2014.