“In Hungary, what usually happens with an overstimulated economy at the end of the cycle is happening in a textbook manner. Inflation explodes, which causes household real incomes to become negative, which causes household consumption to collapse, causing an ‘unexpectedly’ large economic slowdown. In addition, in such cases – precisely because of the previous overstimulation – the government cannot come to the aid of the economy either, because there is nothing to do, no reserves for it. Moreover, budget cuts have to be applied precisely when the economy is already doing badly, this further deepens the slowdown (this is also happening in Hungary at the moment)” – the investment specialist explained the trap situation the Hungarian economy has fallen into and the reason for this.
According to Viktor Zsiday, a common mistake of emerging countries is that they push the gas to the limit even in good times, and when colder winds blow, there is no fuel left, nothing to heat, reports Portfolio.
In this scheme, according to the specialist, tax revenues are “unexpectedly” low due to the recession. A lack of tax revenues may necessitate tax increases, expenditure reductions and indebtedness, which further reduces growth (in the first two cases) or leads to stability risks (in the third).
According to Zsiday, this is a self-reinforcing circle: slowdown equals less income, which equals austerity, which also results in a slowdown.
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Viktor Zsiday also thinks that the only question is how much money should be collected and from whom. According to the expert, there is not much else left but a tax increase.
But whose taxes are we raising?
– asked the question, and then answered:
The expert says that, based on our current knowledge, Fidesz is increasingly the party of pensioners and low/middle income earners, so a “temporary solidarity” (possibly: “sanctioned”, “war”, “Zelensky”, “Brussels” party can be completely logical politically ) introduction of a tax on higher wage earners.
Based on all of this, he predicts – if he had to guess – that those with higher incomes will have to participate in the financing in some way.
So the bottom line is that you need money from somewhere. We don’t know who will pay, but the political logic points in the direction described above
he said.
According to Viktor Zsiday, increasing indebtedness (that is, releasing the deficit target) is not an option.
“Due to our already serious relationship with the EU, the market situation is already highly metastable, it doesn’t take much for something to jolt us out of the current calm. Another scary news (e.g. a large budget deficit) would lead to serious stability risks, the (partly hot) capital currently financing us could easily get scared, which could lead to a serious forint plunge, so this is probably not a viable option.” said the specialist.
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