Pálinka Politics
A new type of political discourse in Hungary has taken shape
Pálinka is one of Hungary's most renowned drinks. It's a distilled spirit made from fruit such as plum, cherry, pear, or apricot, and is comparable to eau de vie in France or Schnapps in Germany. Apart from its social and cultural significance, pálinka now appears to have a political significance as well. It featured as one of the 29 points in the action plan introduced by the Hungarian government last month. Considering that this action plan is seen as the key to the country's economic future, the fact that pálinka made it on the list is significant indeed.
Almost everyone who owned a small plot of land with a few fruit trees at one time or another made their own pálinka, albeit most often illegally. An attempt to severely restrict this activity was introduced in 2004 in line with the practice regulating moonshine in most industrial countries. Yet as Prime Minister Viktor Orbán wryly noted in parliament when he introduced his action plan at the beginning of June, the right for Hungarians to make their own pálinka has been a 90 year fight for freedom and he has now put a victorious end to this struggle.
On the surface, all this may seem like a bad joke and the knee-jerk reaction in parliament when Orbán first made this announcement (in the form of laughs and smirks) seemed to reinforce this. Yet Orbán went on further to try and shine a serious light on the subject; after all, it was quite high on his list - number nine of his twenty nine points. According to Orbán, this struggle of Hungarians to brew their own pálinka is a deep-seated, very old expression of freedom for those living in rural areas. Thus, as far as he was concerned people must be granted this freedom and allowed to enjoy its benefits without delay.
While some regarded Orbán's pálinka policy as a humorous political distraction, for others it was anything but this. They regarded the matter as a misinformed and irresponsible endeavour. Former health minister Mihály Kökény, for instance, denounced the idea saying that such a plan would worsen an already major health problem. Kökény points out that alcoholism is the country's third biggest health problem and leads to hundreds of billions of forints in damage every year. He added that Orbán's proposal also flies in the face of opinions expressed by professional organisations on the subject.
Other opponents to Orbán's pálinka liberalisation include those who deal with pálinka on a day to day basis. László Piros, Grandmaster of the Order of Hungarian Pálinka Knights, feels that Orbán's pálinka policy is much ado about nothing. He explains that there was never a problem with anyone making pálinka as long as they kept to the regulations and paid the necessary taxes.
There have also been a few concerns with Orbán's pálinka policy outside the country's borders. The legality of homebrew pálinka threatens the very existence of European Union regulations which denote pálinka as a Hungarian speciality. Others are more concerned with a precipitous drop in quality. Already, it's estimated that about a quarter to a third of the pálinka available within the country is illegally produced. The Pálinka National Council, meanwhile, which is supposed to be consulted on anything to do with rules and regulations governing the production, distribution, and marketing of pálinka, wasn't contacted by Orbán prior to the announcement of his pálinka policy.
A haphazard programme peppered with populism
In the end, what all this points to is a concept that had been rushed through without any proper planning or serious consideration of the possible consequences. Moreover, it had been tagged with a national and historical significance which far exceeded its importance. In many ways, it reflects the overall manner in which the Hungarian government now approaches all issues. In particular, it's a reflection on the government's 29 point action plan itself.
The Hungarian government's 29 point action plan is clearly a haphazard programme peppered with populism. Many aspects of it have been rushed through parliament with public debate only happening ex post facto. Peter Akos Bod, economist and former head of the Hungarian National Bank (MNB), noted that the 29 points outlined by Orbán in the beginning of June was essentially a quick backup plan put into place in response to the sharp fall of the Hungarian currency. This sudden drop was caused in early June by two leading officials of the governing FIDESZ party who recklessly compared the economic situation in Hungary to that of Greece.
Basically, the action plan introduced by the government is a group of measures supposedly aimed at rejuvenating the economy. On the one hand it includes tax cuts, such as the introduction of a flat tax, while on the other it introduces a range of new taxes, such as a bank tax levied on financial institutions as well as the end to a tax-free minimum wage. Measures to trim the top salaries in state owned enterprises have also been introduced as well as a controversial measure allowing for the arbitrary dismissal of civil servants.
There is no question that the bank tax and measures to trim the top salaries in state owned enterprises were done in such a way so that they would appeal to public sentiment. Indeed, subsequent to the announcement of the 29 point action plan the propaganda arms of the governing party (such as Lanchid Radio and the Magyar Nemzet newspaper) have been spewing an unusually large dose of anti-bank rhetoric. Meanwhile debate on the more controversial aspects to the government programme, such as arbitrary dismissal or the flat tax, were conveniently sidelined.
In many ways Orbán's 29 point action plan may appear as a give and take compromise, with everyone giving a little but at the same time getting something back in return. Yet upon closer inspection it's apparent that some will end up giving more than others; the same also appears to work in reverse, on the receiving end. Ultimately, it's quite obvious that the rich will end up getting richer while the poorer will wind up poorer.
16% Flat tax
Essentially, much of what has been rammed through parliament is nothing more than a numbers game. The shortfall in government revenue caused by the flat tax, for example, which supposedly makes it easier for those who pay income tax to know exactly how much they will be paying, will be offset by taxing the minimum wage which will bring an estimated 1.3 million new taxpayers into the system. However, some analysts point out that those who earn the minimum wage will now end up worse off because the extras they received which helped to compensate for the low wage will be withdrawn since the costs associated with the minimum wage will be now higher. Conversely, those affected by measures to trim the top salaries in state owned enterprises will be partly cushioned as they will be able to recoup some of their losses from what they will gain through the flat tax. Indeed, for top income earners the introduction of a flat tax could mean tax savings of much as 50%; those making the minimum wage, meanwhile, will see a slight drop in their real wages.
All this hasn't been lost on observers who credit Orbán's 29 point action plan as a cunning and clever manoeuvre. Some, such as former finance minister Peter Oszkó, noted that Orbán on the one hand was able to calm the markets while on the other gave the impression that the government was actually doing something. Others observed that Orbán essentially dug himself out of a nasty hole by making everyone feel that they would benefit from the action plan, with the exception of bankers and the CEOs of state enterprises. Although scant on detail, most attribute the success of the action plan - or at least its introduction in parliament - to how the Prime Minister cleverly framed the package as something other than reform, realising that people were tired of austerity measures and were longing for some sort of consolidation.
Bank tax
Unsurprisingly, the banks and their supporters were the first in line to condemn the plan. They feel that the government programme will put an unnecessary burden on the banks. Tamás Erdei, head of the Hungarian Bankers Association, warned that the bank tax would aversely affect the ability of banks to lend money and customers in the end would end up shouldering the burden. He also indicated that this year's profits will barely cover the amount that the government is planning to acquire from financial institutions via the bank tax.
Others, meanwhile, take a different approach. They point out that the rationale behind a bank tax is that banks had been helped by governments when the financial crisis broke in 2008 and now that governments are in a debt crisis it's only fair that they return the gesture. Yet unlike many other countries, banks in Hungary didn't receive taxpayer's money in order to reinforce and stabilise the financial sector, mainly because the conditions for such assistance weren't favourable. Thus, many financial analysts feel that there is no moral justification whatsoever for a bank tax by the Hungarian government.
Regardless of whether the bank tax is justified or not, in the end most believe that the banks will pass on the burden to customers anyway. In fact the Unicredit Bank, Hungary's second-largest lender, had already publicly announced that it will do so. Others, such as Axa, have announced that they would stop granting foreign currency based loans.
Aside from passing on the costs of the tax to customers, some speculate that the bank tax will have an adverse effect on the Hungarian economy as a whole. Access to capital will be tighter putting a burden on many small and medium enterprises. This, in turn, will lead to a certain amount of fiscal uncertainty. Some view Budapest's recent attempt to extend the country's IMF loan toward the end of the year as an indication that the government realises it already may be in a little trouble.
Aside from the bank tax, there have been other criticisms of Orbán's 29 point action plan as well. Among them was a lack of detail. Some feel that the government may end up simply spending a lot of money on measures to make people feel good as opposed to stimulating the economy. A lack of benchmarks to assess progress being made toward fulfilling goals Orbán and the FIDESZ had set prior to assuming power has also been viewed as a weak point. For example, Orbán's claim that Hungary will be the most dynamic economy within the region by 2013 as well as the promise of 1 million new jobs by 2020 can't be effectively measured.
Not only does the government lack benchmarks with which to mark progress toward its objectives, but critics have drawn attention to the fact that Orbán's 29 point action plan substantially differs from the social-political model that he and his party had supported earlier. In particular, the 16% flat tax is a move which clearly benefits high income earners at the expense of low-wage earners.
Recent polls reveal the unease many have toward this apparent shift. According to a survey published by the Szazadveg Institute, an average 84 percent of respondents were in agreement with the goals of the action plan announced in June. The lowest-level of support, however, was given to the flat tax in where just 52 percent were in agreement with the idea. According to an analysis by the FIDESZ, while voters have generally reacted positively to the 29-point action plan the flat tax was the "least understood" component of the package.
Mixing up of past history with present economic realities
This, more than anything else, shows the sophistication of the government's political strategy. On the one side is the "Feel Good Factor" it promotes through measures aimed at appealing to the public: pálinka liberalisation, a bank tax, wage freeze for top salaries, etc. On the other is an explanation for everything. Much of this is centered on the fact that the Socialists were in power for the past 8 years and that during that time they had messed things up so badly that future mistakes and shortcomings can all be attributed to this period in one way or another.
In conjunction with all this, various diversions are also employed. Hence, supporters of the right wing in Hungary are now able to commemorate certain anniversaries such as the Treaty of Trianon without being considered fascists. Previously, it was only the far-right, especially István Csurka and the Hungarian Justice and Life Party (MIEP), which consistently celebrated such anniversaries. The FIDESZ seems to have now taken over from Csurka and the far right, as least in terms of publicly expressing nationalist sentiments. Thus, while Orbán and others had walked out of parliament 20 years ago in protest at commemorating the Treaty of Trianon, they are now the ones who stand at the forefront and promote its remembrance.
The mixing up of past history with present economic realities is something which distinctly separates the existing government from previous ones. The undercurrent being sought is that of a struggle for freedom. This notion fits in line not only with Hungary's past (the Revolution of 1848, Trianon, the Hungarian Revolution of 1956, the street protests of 2006, and the right to brew pálinka), but with the political career of Orbán and the FIDESZ as well. Harnessing this undercurrent not only helps to provide an explanation for everything but also helps to boost Orbán's nationalist credentials.
Despite the fact that the present government appears to differ significantly from its predecessor, there are many similarities. Although the previous government was denounced by Orbán and the FIDESZ for playing with figures, the present government also appears to be engaged in a numbers game. For instance, it's quite apparent that the revenue which is to be secured from such measures as the bank tax will be used to pay for the government's populist promises, such as reopening regional rail lines (closed by the previous government due to budget constraints), as opposed to using this money to jumpstart the economy.
A corporatist political culture based upon conditional tenure
Ultimately, the present government looks set to follow in the footsteps of its predecessor, albeit with a change of rhetoric. The underlying framework nevertheless remains the same. This was quite apparent a few days after Orbán announced his 29 point action plan in parliament when he attended the unveiling of Suzuki's new generation Swift model at the company's plant in Esztergom, Northern Hungary. The Prime Minister praised the multinational company stressing that Suzuki's economic success carried an important message for Hungary, in that people shouldn't be afraid of the global financial crisis and that pessimism leads nowhere. He also made reference to the fact that not only did Suzuki now have a new car model but Hungary likewise had a new economic model, obviously drawing a parallel between himself and his host.
Orbán's words as well as his partaking in the event are highly symbolic in more ways than one. Suzuki is renown not only for its cars but also for the feudalistic way in which it treats its workforce. In Hungary the company had repeatedly violated worker's rights, and yet it seems to operate above and beyond the rule of law. Suzuki systematically forces workers to do overtime and doesn't give employees three free Sundays a month as required by law. Many still didn't receive their previous year's holiday in December and the toilets in the plant are so few and far between that during breaks not everyone has a chance to answer the call of nature. Meanwhile, the company has repeatedly not allowed workers to organise themselves into an independent union. In 2006 it fired union leader Zsolt Párma; when Suzuki was forced to take him back because the court ruled that his dismissal was illegal, they fired him again the following year for the same reason. Later, in 2009 the multinational carmaker succeeded in driving away union boss László Kiss as well.
For the car industry in Hungary, it's customary that the Prime Minister symbolically rolls a new model off the assembly line. Since the fall of communism this has become a tradition of sorts. Yet it has not always been the case. In 2006 Prime Minister Ferenc Gyurcsany didn't attend the launch of a new Suzuki model because of the incident surrounding the dismissal of union leader Zsolt Párma. Thus, if Orbán really wanted to match his actions to his words, he needn't have gone to the Suzuki event. Considering that his arch-rival Gyurcsany, who was one of the most corporate-friendly and neo-liberalist leaders Hungary has had so far, was able to forego a Suzuki event on principal then the present Prime Minister had no excuse to attend whatsoever.
Orbán's words and actions at the Suzuki event betrayed the true nature of his government's new social-political model. The 29 point action plan is, essentially, a collection of corporate friendly commitments hidden underneath a bundle of populist measures. The arbitrary dismissal of civil servants, for instance, sends a clear message to corporate leaders that the labour market in Hungary will be more "flexible".
There is yet another and, as you would expect, ulterior motive for such a measure. The arbitrary dismissal of civil servants not only sends a corporate friendly message to the rest of the world and is a means by which the present government can take revenge on its opponents, but it's also a means by which it can terrorise its own supporters. Since taking office, what Viktor Orbán and the FIDESZ have effectively done was to establish a corporatist political culture based upon conditional tenure. Everyone exists under the continual threat of dismissal without warning. In effect, it's administration by fear akin to the Nazi and communist dictatorships of the past, with the firing squad replaced by instant dismissal. But at least you can brew your own pálinka.