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Two difficult years of struggle stand behind Hungary, gov’t, says state secretary

Banking

Two difficult years of struggle stand behind Hungary and its government, but significant results have been achieved during this period, National Economy Ministry state secretary Zoltán Cséfalvay said in an interview with MTI.

The government reacted quickly to challenges and successfully consolidated the budget, he said. It also improved Hungary's economic competitiveness with reforms, he added.
    Cséfalvay said Hungary's government, similar to other European governments, faced three significant challenges: reacting quickly to the crisis in the eurozone, distributing the burden and the risks of the crisis, and establishing a balance between financial stability, economic growth and confidence on financial markets.
    Cséfalvay said he though the government had reacted quickly to the continuously changing situation of the European economy, but acknowledged that the responses were perhaps too fast sometimes.
    "It appears from the government's external and internal assessment that there was not always enough time to explain what we were doing and why. That must be corrected," he said. He added that speed did not always support predictability, and in these cases broad consultations were lacking.
    He said that completing the financial consolidation in just two years was a significant achievement, adding that the general government deficit would be under the 3% of gross domestic product (GDP) threshold both this year and next, according to the EU's latest projection, which is unprecedented in the past two decades.
    "A trend turnaround in debt and the deficit was necessary for this," he said. "We are past the difficult, turbulent period. The task of the coming years will be to maintain the improving fiscal trends," he added.
     The main dividing line between European countries is not so much the deficit and public debt, but whether or not governments carry through with reforms to improve competitiveness, in addition to establishing financial stability. Hungary has started restructuring in some areas of the economy at the same time as it undertook financial consolidation, he added.
    Writing the reforms into law has been completed in practically all areas, Cséfalvay said. A restructuring of the public transport system and local government reforms are exceptions, he added, although noting that the process of local government reform had already started and would last this year and the next.
    He said institutional and legal conditions preventing the buildup of indebtedness were among the most important of the reforms carried out.
    A key element from the point of view of competitiveness is the restructuring of the labor market, he said. The new Labor Code makes the labor market much more flexible and creates more room for maneuver at talks between employees and employers, he added.
    Cséfalvay said the dual vocational system was established, and public work program employment, unemployment benefits and the pension system were restructured. The measures are part of a very strong supply-side labor market policy, he said. An opening to foreign markets, investment incentives and a low corporate tax are creating demand for this supply, but the economic crisis has made the situation difficult, he added.
    He said the flat-rate tax system would really be simpler next year and it was expected to boost consumption and "whiten" the shadow economy. Signs of the latter can already be seen, he added. The message of the flat-rate tax is that the government will not burden disproportionately those who deliver high added value, he added.
    He explained that the system made it worth it for companies to employ skilled workforce. The reduction in the marginal tax rate boosted the number of employed in Hungary by about 60,000 last year, and the data show the market is looking for mainly skilled laborers.
    Cséfalvay said there would be no new taxes. If there are tax changes, those will be to reduce the tax burden, he added.
    In order to carry out these reforms, the government needed to buy time in 2010, he said. In addition to the fiscal stabilization, one-off measures such as the three-year temporary sectoral "crisis taxes" were carried out, he added.
    One of the most important advantages of the government's two-thirds majority in parliament was that it could fully implement reforms, he said.
    The laws establishing the reforms have been passed, and the fine-tuning now follows, he said. He acknowledged that mistakes may have slipped in during the enormous legislative task, and said these had to be corrected.
    Cséfalvay said Hungary's government had solved two "bonus tasks" with which other European countries did not have to deal: the problem of foreign currency-based loans and the restructuring of the pension system. In the case of the latter, the situation in which the mandatory private pension pillar added 1.5%to the fiscal deficit each year ceased and now it contributes to keeping the gap under 3%, he added.
    An assistance program for borrowers with forex loans was unprecedented, but the government strived to distribute the risks and the burdens, he said. By 2017, when the exchange rate limit system ends, stabilization and reforms will produce results and the crisis in the eurozone is expected to be resolved; thus, five years from now, borrowers with forex loans will be able to make repayments at market exchange rates in a better situation than now, he added.

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