Economic development minister: Hungarian central bank is operating in cyclops mode
Economic growth and the fiscal balance in Hungary can be restored by increasing real wages, which is key to stimulating consumption and speeding up growth, the economic development minister said in Budapest on Monday.
Hungary is emerging “from a storm” and “is past a turning point”, and now needs “strategic calm”, Márton Nagy told a conference marking the 55th anniversary of the establishment of daily Világgazdaság.
He said 2023 was a year “of pushing down inflation”, and the main goal next year was to refuel economic growth by stimulating consumption.
“The central bank is operating in cyclops mode, let’s hope it doesn’t go blind”,
Márton Nagy, Minister of Economic Development, said in a rebuke to the National Bank of Hungary (MNB). The problem with the MNB, he said, is that it is only and exclusively concerned with bringing down inflation.
Nagy attributed the budget deficit increase primarily to lower-than-expected revenues, mostly in VAT. “Around 900-950 billion forints less VAT flowed into the budget than expected so far this year,” the minister said.
Hungary’s tax system heavily relies on consumption, and VAT revenues in proportion to all tax revenues are among the highest in the EU, so as consumption rises and VAT revenues increase again, the fiscal balance will improve, he said.
As we report today, the government aims to preserve the competitiveness of its tax system, notwithstanding implementation of the global minimum tax, details HERE.
That is what happens if you rely on consumption taxes, paid by the end user. Consumption stagnates because people are spending less because their purchasing power has cratered due to Hungary’s all of Europe beating inflation figure. Then the cash flow falters.
The VAT revenues in turn fund Europe’s lowest corporate tax rate. Well. Assuming the people generate enough VAT income.
Good read: https://www.imf.org/en/Publications/selected-issues-papers/Issues/2023/02/27/Drivers-of-Inflation-Hungary-530224
And do download the entire 18 page analysis. It is illuminating. “Too loose a policy mix”… “Price and interest rate caps are costly, ineffective, and undermine monetary and fiscal policy’s efforts to reduce inflation” .. Politicians choices?
Who would have thought?