Orbán: Election to decide between “new” and “old” economy – Part 2

Orbán said if Hungary’s inflation rate fell from the current level of over 7 percent to 6 percent by year-end, the inflation environment would still be high in the coming years, and part of the reason why, he added, was that Brussels was failing to coordinate climate policy with economic policy, leading to high energy prices.

Also, the Russia-Ukraine standoff and the fate of the North Stream gas pipeline had a part of play, he said. With high energy prices, Russia can bump up its profits selling less gas, he added. The big question over the next few months was what the outcome would be and how this would affect inflation, he said.

“Time is not on our side, it is on their side,” the prime minister said. He noted that Hungary, however, has signed long-term gas supply agreements with Russia, with increasing volumes expected.

Regarding caps on fuel, interest on loan repayments, and food prices, Orbán insisted it had been necessary to intervene to combat inflation. “Let me reassure everyone: we haven’t taken leave of our senses, and we don’t have any intention of restoring price controls.”

Read also: Orbán: Election to decide between “new” and “old” economy – Part 1

The prime minister noted five areas that may hold the Hungarian economy back in the future unless the government made timely decisions: the overly high level of foreign ownership in the economy, the dominant role of large exporting companies, the relative dearth of quality small and medium-sized enterprises among exporters, profit-poor domestic companies, the fact that foreign companies are more productive than their domestic peers, and the country beyond Budapest lagging behind it.

Between 2010 and 2020, Hungarian ownership in the energy sector, the banking sector and the media increased greatly, but the insurance sector, telecommunications industry, building materials and food retail are still largely in foreign hands, he said.

At the same time, without foreign capital “we aren’t competitive, there’s no full employment or new technologies,” he said, adding that it wouldn’t be desirable to pursue a policy with a bias against foreign investment. “At the same time, Hungarian ownership must be strengthened,” he said.

Now Hungary has 12,000 export-oriented companies as opposed to 2,000 in 2010, Orbán said. Yet foreign-owned companies generate 80 percent of export revenue. The aim, he added, is to boost domestic exporters to 30 percent. Markets that produce higher profits than the West, such as the Balkans and China, must be targeted in this regard, he said.

Read also: Asian guest workers are flocking to Hungary

Orbán said that whereas many domestic companies were expanding, “we aren’t doing well in regional comparison”. “We must mobilise our tools, knowledge and skills” to increase the number of Hungarian companies making a profit, he said.

The prime minister said the productivity of foreign companies in Hungary was much higher than their Hungarian peers, though the rate of increase in domestic productivity was at least outpacing that of foreign ones.

He said Hungarian companies must do more to digitalise and automate. The government, he added, stood ready to help. Also, R and D spending must increase, he added.

The prime minister said the government intended to spend three times as much on rural development in the next two years, and this included developing cities. He noted that in 2021, 190 billion forints was spent on village development, and an additional 93 billion is being spent this year.

To address these issues, the state must continue to provide support, Orbán said. “Public funds are needed for financing, and we need tax cuts, investment support and loan guarantees.”

The plan to relaunch the economy in the 2021 budget, he noted, provided 12 percent of GDP to these kinds of developments while this proportion has been raised to 5 percent this year.