JIIA Forum
July 9, 2009
JIIA Conference RoomTibor Navracsics, Head of Parliamentary Group, Fidesz (Hungarian Civic Union)“Current Economy in Hungary and the Challenges for Overcoming the Financial Crisis”

Summary of Presentation

Following the transition to multi-party systems in Eastern Europe after the Revolutions of1989, Hungarian politics between 1990 and about 2002 featured a multi-party systemcomprising about six medium-sized parties.

A subsequent bipolar convergence on thecenter-left Hungarian Socialist Party (successors to the Communist Party) and thecenter-right Fidesz transformed Hungarian politics from a moderate multi-party system tosomething akin to an adversarial system of two major parties.

The extremely small

margins of victory between the two major parties, the Socialist Party and Fidesz, left
Hungary with a weak ruling party and a strong opposition party. This made it difficult for theruling party to exercise strong leadership and for the ruling and opposition parties to come toany political consensus, creating a stalemate in Hungarian politics.

Hungary was hit hard by the global financial crisis.

It is not the case, however, thatproblems suddenly arose in the Hungarian economy as a consequence of the financial crisis.
Hungary’s economic growth had already begun to slow before the financial crisis. Sincejoining the EU in 2004, Hungary has seen its GDP growth rate top out at 9.9%, much lower
than the Czech Republic (25.6%), Poland (23%), and Slovakia (35.8%), all of which joined
the EU at the same time.

The government’s budget deficits have grown throughout thisperiod, and the unemployment rate is now above the EU average and rising.

The low

percentage of taxpayers in Hungary is a particular problem, stemming from Hungary’s low
employment rate and its failure to implement tax cuts like other Central and Eastern
European countries.

Many Central and Eastern European countries reformed their tax

systems by, for instance, cutting the highest income tax rates and corporate tax rates, but
Hungary did not adopt such policies.

Hungary faces numerous social and economicproblems, as evidenced by a growing number of bankruptcies and lower welfare standards(in terms of prenatal allowances, etc.) than those of other EU countries.

Reforms are needed to overcome these problems. The state’s bureaucracies must berestructured to make them more streamlined and efficient, and expenditures must bereduced.

Following this, taxes should be cut, tax rates lowered, the percentage oftaxpayers increased, and the underground economy brought out into the open and returnedto the aboveground economy.

Tax cuts are also effective in eliminating corruption. An

efficient government, a less burdensome tax system, and a less corrupt economy will likely
generate greater employment and improve Hungary’s GDP growth rate.

A strong Hungarian economy will depend on the success of efforts to make government
more efficient and the tax system more transparent and conducive to investment and, to that
end, competitive small and medium-sized enterprises need to be fostered to generate morejobs, more profits, and more GDP growth.

Hungary’s small and medium-sized companies

are not necessarily in competition with multinational corporations, and thus they cancooperate through investment in technology development and other high value-addedemployment.
Hungary.

Strengthening the Hungarian economy will help ease social tensions inFidesz would therefore like to restore Hungary’s international credibility byintroducing the Euro as soon as possible, reducing tax burdens, cutting state expendituresby improving the efficiency of government, stimulating economic growth and job creation,and eliminating corruption.