Hungary: 100 steps to re-election

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of PLC.

Hungary’s prime minister gives party favorites ministerial posts as he prepares for reform and general elections, writes Judit Szakács in Transitions Online.

Hungary’s finance ministers tend to have a short job-life expectancy. On 24 April, Tibor Draskovics was let go after just over a year in office. His successor, Janos Veres, will likely also have one year, as general elections are due in 2006. In that period, he is being asked to do a job perhaps best-suited for a magician: to cut taxes and increase state revenues at the same time.

The press had for some time suggested that Draskovics’ days were numbered. Prime Minister Ferenc Gyurcsany duly emerged to deny the rumors and offer Draskovics his public support, but, true to political cliche, that proved the kiss of death. On 18 April, Gyurcsany declared he needed a finance minister who enjoyed greater political and professional support than Draskovics had.

Since Draskovics was well-respected as an expert, the prime minister’s emphasis is presumably on “political” support: Draskovics, a confidant of former prime minister Peter Medgyessy, will be replaced by a founder of the Socialist Party (MSZP) and a man very popular with his fellow Socialists. When Gyurcsany announced Draskovics’ dismissal and Veres’ appointment to the party parliamentary faction, the parliamentarians cheered.

Tough, but not ‘brave enough’

Draskovics’ sacking is the first step in a new “100-step policy” that Gyurcsany introduced on 15 April at an MSZP party congress. The prime minister declared that there can be no more delay in implementing structural reforms affecting several sectors of the economy and the civil service. Although he did not specify what he had in mind, he told the press when he announced Veres’ appointment that the state cannot spend more, only differently.

Draskovics introduced some unpopular measures in order to keep the budget deficit within limits acceptable to the European Union and to keep Hungary on track to introduce the euro in 2010. His most controversial step, though, was his decision in October 2004 to stop refunding VAT to export companies, saying that since EU accession, export-related tax frauds have become easier and so stricter supervision is needed. Business leaders and analysts alike instead saw the move as a trick to massage budget-deficit statistics. Investigations launched into alleged tax frauds meant that hundreds of export companies received their VAT refund only in 2005; the refunds therefore “disappeared” from the budget figures for 2004.

The last straw for the prime minister may have been Draskovics’ failure to come up with “brave enough” proposals to cut taxes, a failure for which Gyurcsany publicly criticized Draskovics in early April. Tax reform was part of the coalition agreement that MSZP signed with the liberal Alliance of Free Democrats (SZDSZ). However, since the budget deficit is not allowed to grow larger than it already is, Draskovics had little, if any space to steer a radical tax cut into law.

While Draskovics won respect for his expertise, his personality will not be missed in his ministry. He had a reputation of being a tough boss with a confrontational style; according to the weekly Magyar Narancs, his colleagues dubbed “an impossible task between two scoldings” a “Draskovics sandwich”; and the weekly HVG reports that some ministry personnel referred to weekly staff meetings as “knockout rounds,” an allusion to television reality shows in which contestants are voted out. 

After his own knockout, Draskovics will go on to serve on the board of Hungarian Power Companies, a state-owned energy group.

To read the article in full, visit the Transitions Online website.