The government has also thoroughly prepared for the political autumn, at least they have stockpiled the new economic miracle weapon.
- But why exactly in the fall of 2024 did the Hungarian Prime Minister say that the gross average wage in Hungary must be raised to one million forints within three years?
- Is this a preparation for the 2026 parliamentary elections, or does it also have an economic basis?
The financial capacities of the Hungarian government are quite limited. The European Union has been withholding development funds of around 20 billion euros for years. We are essentially cut off from the Reconstruction and Resilience Fund, and the allocation from the 2021-2027 EU budget is quite hectic. Funds are still flowing from the budget cycle before 2021, but they are not enough to restore the Hungarian economy, especially to start the necessary scale developments. The problems are compounded by the fact that the fate of area-based agricultural subsidies from the Common Agricultural Policy is also surrounded by uncertainty. They can reduce the limits at any time, which is the main source of income for Hungarian farmers – answered our suggestion Csaba Lentner economics professor, adding that although both the import of capital and borrowing from the Far East are setting records, but they have a reasonableness limit.
Not a mood booster
According to the teacher of the National Public Service University (NKE) and Károli Gáspár Református University, although our new economic partners are open to financing Hungary, there is an increasing need for economic development focusing on our own internal resources and government instruments.
The New Economic Action Plan is not a mood-enhancing measure, but an economic necessity. I am convinced that the 181 billion euro budget just announced is only the initial step. The competitiveness of the SME sector cannot be substantially improved with this amount of money. However, the direction is right and I hope that in 2025 new budgetary frameworks will be opened to improve the competitiveness of SMEs
– he said.
In addition to the SME support of 181 billion, the additional measures are also intended to increase internal solvent demand and investment capacity. Both the HUF one million average wage and the guaranteed minimum wage of EUR 1,000 increase the financial capacity of the population. The Hungarian economy is increasingly adversely affected by the ongoing struggle for skilled labor, meaning that skilled Hungarian labor is lured to the West for higher incomes.
The Hungarian wage increases are partly intended to curb the emigration of the workforce, and on the other hand, it is the old proven recipe that the economy can be started by increasing the solvent demand
– pointed out Csaba Lentner, adding: it would be justified that the wage increases should take place due to the increase in the productivity of the workforce, but this will still have to wait.
They work hard, but produce less
The current action plan is not a sudden flare-up, as the government already decided on the strategy for strengthening micro, small and medium-sized enterprises in a 2019 government decree.
Domestically owned SMEs account for 99 percent of all businesses, employ 72 percent of employees, and at the same time account for 55 percent of net sales and GDP
– warned, so this refers to a market segment in need of development.
Domestic SMEs are not efficient enough, most of them cannot innovate without government assistance. It is clear that if we want to achieve a growth rate of over 3 percent without SMEs, it is impossible
– said Csaba Lentner.
The gross added value produced in the SME sector per employee was 22 thousand euros in 2019. The government wants to increase this to 28,000 euros per person by 2030. This requires wage dynamics, and it will also be necessary to increase the innovation capacity of the SME sector, since in 2020 only 5.75 percent of them were competitive on export markets. The government wants to increase this to 7 percent by 2030, which will require state support of thousands of billions in the coming years
– the university teacher quantified the essence of the action plan.
Photo: Economx, Tamás Hartl Nagy
A third of the employees live on a modest income
Turning to wage increases, he concluded that wage increases of more than 10 percent over the years are also justified from an economic point of view, because it seems that an increase in aggregate demand can only be ensured permanently through wage increases generated by the government and an increase in generated demand.
There is no problem with this if the money stays in the country. Let people consume, give orders to service providers, pay sales tax. This is the order of the economy based on internal resources
– explained the economics professor.
According to the university professor, the transfer of private pension fund payments and Szép-kártá benefits to construction projects is particularly forward-looking, as it also wants to help the already weak construction industry. which was still the main driving force of the economy in the 2010s. He sees the essence of the Action Plan in the fact that the government wants to bring the economy back to a sustainable growth path with targeted measures in the most direct way.
- This year, the minimum wage is HUF 266,000, which is quite modest in European terms, at the current euro exchange rate it is EUR 665.
- The guaranteed minimum wage is HUF 326,000, or EUR 815.
- 223,000 workers are employed on the minimum wage, and 741,000 on the guaranteed minimum wage.
If we add those employed close to the guaranteed minimum wage, one third of the employees have a modest income – warned Csaba Lentner, who says that this is precisely why the government very correctly he envisioned a gradual increase of these wages.
Low-income workers have a weak ability to assert their interests in the wage market, they would not get additional income without government support.
There is strong opposition on the employer’s side, but with the support of the government, the employee interest groups can regularly raise the minimum benefits, which has a positive effect on the income of higher earners, especially the spillover effects of the guaranteed minimum wage increase on other wages are significant, he explained.
I trust that after some time the efficiency of the Hungarian economy will reach a level where the basis for wage increases will be performance growth and productivity improvement, but right now we are still in an emerging phase of development. The smallest companies employing a few people are in the most difficult situation, since they are not only incapable of innovation and technological renewal, but also of managing wage increases, but they employ hundreds of thousands of workers. Government innovation intervention and wage support are really important here – he said
He also made it clear that
securing and redistributing resources is at least as much a financial issue as a political one.
After the 5 narrow years behind us, the Hungarian economy must be strengthened, and that is why he is convinced that in the year and a half before the 2026 elections, the government will do everything to protect the labor market and the prosperity of families. As for the development demand, a multiple of the current SME support framework of 181 billion will be needed – Csaba Lentner referred to the basic thesis of Economx.
A BYD in the AutoWallis car showroom in Budapest
Photo: Economx, Tamás Hartl Nagy
Why are the Czechs better?
About our economic neutrality
There is a recession in Germany, and the growth of the Eurozone is around 1 percent, so according to the economics professor, we are essentially testing what internal and Far Eastern resources we can use to develop the economy, despite the EU’s aloof attitude.
Our prospects are not bad. Prime Minister Viktor Orbán’s economic neutrality strategy tries to resolve the unilateral reliance on the Western world and focuses on bringing in capital, innovation and technology from the countries from which we can get them on the most favorable terms and where the technological culture is at the highest level. And this is no longer necessarily found in the Western world. Western countries compete for capital from the Far East in the same way as we do, so it would not be advantageous from a competitiveness point of view if Brussels were to discuss with Beijing what Chinese investments could come to Hungary – he explained.
The situation is only aggravated by the fact that the German car factories are not in good shape either, and the technology of electric car and battery production has not reached the desired level of development in Europe, and charging and service bases are also incomplete. We did not achieve much from supplier activities related to international car factories. We were only able to incorporate domestic added value into the car brand assembled here to a limited extent – warned the economics professor. All this means that
In Hungary, the ability to produce GDP per capita is 76.1 percent of the EU average. The Czech Republic, which is the same size as us and has a similar historical past, already has 92.4 percent. And how did the Czechs achieve this? Their share of domestic added value in exports is 62.3 percent, while ours is only 54.1 percent.
The vehicle industry plays too big a role in our thinking, while the added value ratio of knowledge-intensive sectors is three times that of the vehicle industry. The example of the Czech Republic also proves that with a more intensive form of knowledge capital production, the production of added value is more efficient Csaba Lentner answered the many thousand billion HUF question.
Source: www.economx.hu
