Zsolt Törőcsik: As you’ve already heard in our programme today, the situation of energy prices in Western Europe is becoming increasingly untenable, and it’s really not a question of how much energy is available, but whether there is energy at all. I don’t think that many of us believed that the pandemic would be followed by an even more serious crisis, and that the situation over there would also affect Hungary. To what extent this is true will be discussed in the upcoming minutes. I welcome Prime Minister Viktor Orbán to the studio. Good morning.
Good morning. We are indeed seeing wartime prices in Europe. On Thursday, 24 February – if I’ve remembered that correctly – no one would have thought that what had emerged wasn’t simply a conflict or a war between Ukraine and Russia, but that an era was coming to an end and that we were entering a new phase in European history: an age of wars. And this has an impact. It’s true that Hungary is trying to stay out of this war, and we must remain alert in order to ensure that the armed conflict doesn’t spread to Hungary. But we must also recognise that this war is not only being waged on the front lines, but also in the world economy – or at least in the European economy; and we must recognise that part of this war is the increase in energy prices, with wartime inflation, wartime prices, and that this calls into question everything we’re accustomed to. We can say that we had a modern and secure life, and the basic preconditions for this existed throughout Europe. Of course there were some who governed more skilfully and others less so, but nothing called into question the basic preconditions for life in Europe. Now, however, we need to fight for everything we’ve taken for granted. There will be two great battles here, the first of which we’re now living through. This is the fight for energy, to curb rises in the cost of living, for tolerable utility prices. But there will also be a battle for jobs. This is because all the forecasts I’m working from, international studies and analyses, show that the combined effect of the sanctions policy and the war will cause the European economy to enter recession – in plain words, to begin to shrink or decline in performance. There’s still a shortage of labour in Hungary, but I’d advise everyone who has a job and work to value it and do everything possible to keep it; because in the coming months we can expect a European economic downturn.
But we’re still in the first battle for energy. Not so long ago the Russians said that the operation of Nord Stream can’t be guaranteed, and yesterday President Macron said that we need to prepare for the possibility that gas from Russia will stop flowing. Here in Hungary should we be more afraid that energy will be expensive, or that there won’t be any?
The war has caused electricity prices to rise fivefold and gas prices to rise sixfold. Now there are countries that are committed to the sanctions policy. The most important thing would be for Brussels to realise that a mistake has been made. So not only has the sanctions policy not fulfilled the hopes that were placed in it, but its effect has been the opposite of the intended one. They thought that the sanctions policy would hurt the Russians more than the Europeans. That hasn’t happened, and we’ve been hurt more. They thought that the policy of sanctions could be used to shorten the war, with the possibility of achieving a quick success through weakening Russia. This hasn’t worked either; and, far from a reduction in the conflict, from us being brought closer to its conclusion, the war is clearly dragging on. And there’s no way that the sanctions policy can assist us in this. I have to say that at first I thought we’d shot ourselves in the foot; but now it’s clear that the European economy has shot itself in the lungs, and everywhere we see that it’s gasping for air. In some countries this means that there will be no energy supplies, no natural gas; and in other countries there will be gas, but the price will be very high. Our situation will be the latter, because we’ve taken decisions that allow us to obtain the necessary amount of energy. The question is how long we’ll be able to keep the cost of this within tolerable limits. We’ve now had to declare an energy emergency, which we did at the Cabinet meeting on Wednesday. Your listeners have heard a lot about that, but perhaps less about the fact that I’ve also ordered the setting up of an operational group, to be headed by Gergely Gulyás. His task will be to implement these decisions, these emergency energy decisions, and to draw up new ones if necessary. We’ve increased domestic production of natural gas – or directed companies to increase it. There’s a debate about whether this is even possible. I’ve listened to this debate and the following is the decision that we’ve taken: to increase production – our own domestic production – from 1.5 billion cubic metres to 2 billion. We’ve authorised Foreign Minister Péter Szijjártó to acquire further natural gas reserves, and he’s already on the path to securing a good extra 700 million cubic metres of gas. We’ve imposed export bans on energy carriers, except of course on reserves that we’re storing for others on a rental basis. We’ll supply those amounts to the parties that are leasing such storage facilities – because, after all, we’re Hungarians. I’ve had to order an increase in lignite production: at the moment two lignite-fired units are operating at our Mátra Power Plant, with a further two in reserve; I needed to order the activation of these latter two units. We’ve also had to order the extension of the operating time of the units already in operation at the Paks nuclear power plant. And finally, in order to maintain the reductions in household utility charges, we’ve had to look to above-average consumption. In other words, in attempting to save the reductions in household utility charges, we’ve had to make a decision which ensures that the reductions will continue to apply to those who consume an average amount of energy, while those who consume more than the average will need to pay the market price for it – or try to reduce their consumption to below the average level if they can. I respectfully ask Hungarians and families that consume more than the average to recognise that we’ve now been forced to charge the true price for consumption which is above the average; unless we do this, the whole policy of reductions in household energy bills will have to be abolished.
This is in contrast to Western Europe, where the market price has to be paid on all consumption. I have a German friend who pays a flat rate for gas of 600 euros a month, which is a fifth of the average income there. Nevertheless, everyone here in Hungary is now calculating whether they come within the average consumption, or what they can do to come within it. Some people heat with electricity, and there are still unclear questions. In fact, there are also quite a few figures that are probably not based on reality, showing how much people will have to pay. Is it yet clear exactly what all this will look like?
The Government made its decision based on accurate figures. I can tell you that the average monthly consumption in Hungary is 210 kWh per month for electricity and 144 cubic metres per month for natural gas. This means that about three quarters of households fall into this category. Hungary is in a more difficult position than the richer Western countries, because although it’s true that there are no reductions in household energy charges over there and so they pay the full price, the full price of energy represents a smaller proportion of their salaries than it does in Hungary. So if people here too were to earn, say, 6,000 euros, and one sixth of that were to go on energy, it wouldn’t be pleasant, but it would be bearable. But for many families in Hungary utility bills take not one sixth of their income but one third – or sometimes even half. This is why it was necessary to introduce the policy of reductions in utility charges. The policy of reducing utility bills needs to be introduced in countries like Hungary, where an excessive proportion of people’s incomes is eaten up by utility bills, leaving little money for other family expenses. This is why families must be protected. The Left has never agreed with this. This is a big debate from around 2012, when the Left said that we shouldn’t do this, but that we should do the same as Western Europe, with everyone paying the full price of the energy they consume. This is a sensible economic position in general, and now it may even be valid in Western Europe; but in Hungary the consequences would be extremely serious, because it would push families into poverty. This is an old argument between the Left and the Right in Hungary, which is why the Left has never supported it. We introduced the reductions in utility charges, for a long time we’ve been able to maintain them for the whole population, now we can defend them for average consumption, and we want to continue this policy. We want to defend the reductions in utility charges.
And we have an extraordinary situation that requires extraordinary measures. Do you think that people understand this, that society understands this?
We’re not all the same: some will understand, and some won’t. Perhaps there are many people who will understand, because everyone keeps to a family budget within which some things are affordable and some things aren’t. Before the war it was possible for us to give everyone a full discount on their energy bills. Now that there are wartime circumstances, with wartime prices and wartime inflation, that’s no longer affordable. The truth is that it’s good if we can see that, but unfortunately not seeing it doesn’t change the facts.
There are other measures, which you’ve mentioned. An export ban [on energy leaving Hungary] has also been introduced, which Manfred Weber probably won’t be happy with: speaking about natural gas coming into the EU, he’s said that it should be “fairly” distributed among Member States.
Well, the words of Mr. Weber – the President of the European People’s Party – embody a classically imperialist approach. He’s a German. What are the Germans doing, or what do they want to do? They say that they’re shutting down nuclear power plants producing cheap energy, while they’ll take natural gas away from other countries. Well, I don’t know what to say. This is worse than communism!
Speaking of Brussels, you’ve also said that with the sanctions the European Union has – as you put it – shot itself in the lungs. In the meantime, a seventh package of sanctions is being prepared. Haven’t they learnt the lesson provided by the effects of the oil embargo? The latter has resulted in Russia’s balance of payments showing the kind of surplus that hasn’t been seen for thirty years; meanwhile, after thirty years the same indicator for Germany has turned negative.
Well, Hungary has always opposed sanctions. From the very first moment we said – and I said to the other prime ministers – “Believe me, sanctions won’t help Ukraine.” I understand that everyone wants to help Ukraine, but we must help Ukraine in a way that’s good for Ukraine, and – preferably – not bad for us. Sanctions don’t help Ukraine, and they’re bad for the European economy. Pardon the expression, but if this continues, then the European economy will be throttled. What we’re seeing now is unbearable, so we must arrive at the moment of truth: in Brussels the leaders must admit that they’ve miscalculated, that the sanctions policy was based on false assumptions, and that it must be changed. One must sit down with the Russians and engage in negotiations. A ceasefire must be agreed, and then there must be peace talks, because the only solution to this economic problem is peace.
As we’ve discussed, the embargo policy is obviously the reason for the wartime inflation that we’re seeing across Europe. It is one of the reasons for the reform of the Small Business Lump-sum Tax [KATA), the other being the elimination of an existing loophole. Despite this, the reform has received a lot of criticism, and here, too, a lot of people are affected. László Parragh [President of the Hungarian Chamber of Commerce and Industry] has also said that the reform was rather strong. At the same time, KATA taxpayers have up until now been able to fulfil their obligations to the public purse at a rate of less than 10 per cent. So, all in all, what’s your opinion of this reform?
I think this decision is good and necessary. In 2012, I agreed with the ministers who were then responsible for economic affairs, and who formulated the KATA system. When I was a child the type of people it was designed for used to be called “private sector self-employeds”, if I may use that term. These are the people for whom we wanted to create a simple and manageable form of taxation, because they’re small businesses providing services to the public. There are many such occupations, which everyone’s familiar with in their everyday life. And in the beginning there was nothing wrong with this, because initially the small businesses that opted for KATA – more than 90 per cent of them, say – always issued invoices to individuals, and never to companies. But then companies realised that it made sense to get their employees to go into the KATA system; they were still effectively employees, but legally they were considered to be self-employed, and this benefited the companies. I’m not criticising people for anything: everyone lives as they can, we live however we can, and people try to stay afloat. The problem lies more with companies that either induced or convinced their employees to switch to KATA. And so the number of such people has risen to 450,000; and as I understand it, about 300,000 of these 450,000 are invoicing companies – mostly one company. So we’re really talking about the system being used as a front for employment contracts. But even that could have been accommodated. When things are going well, the economy can cope even with that; but now that there’s a war and we need to think in terms of the logic of a wartime economy, we simply can’t afford it. And it’s not the budget that can’t afford it: it’s the pension system that can’t afford it. The fact is that the pension contributions paid by KATA taxpayers are much lower than they would be if they were working under legitimate employment contracts. When we took this decision to impose restrictions, we did so while working with the figures. I can see that a nurse contributes an average of 86,000 forints a month in pension and healthcare contributions, while a KATA taxpayer contributes 33,000 forints a month. So it’s not realistic for there to be 450,000 people who aren’t paying into the pension fund, not paying the amount they should pay, because then the pension fund will run dry. And the Hungarian pension system is such that the pension contributions collected in a given month are used to pay the following month’s pensions. So if the amount of contributions goes down, the pension system will be in trouble and pensioners will be in trouble. The country can cope with 50,000–150,000 pensioners, but it cannot cope with 450,000, because it simply cannot afford this in the current wartime circumstances. So when it comes to taxation I urge everyone to look at what other legal form they can use for taxation purposes. There are other favourable formats. We’ve closed the KATA loopholes and we won’t reopen them, but people can still opt for flat-rate taxation, or they can choose between the Small Business Tax [KIVA] or simplified contributions [EKHO]. They can become self-employed or, as a final option, go back to being contracted employees – which was the status of most KATA taxpayers before the KATA system was introduced. These changes will come into force on 1 September. Those affected will have until 25 September to make a statement on which tax system they will choose for the future. By the way, I’d note that many of those who today are objecting to the decision are people who didn’t support KATA in the beginning. I clearly remember that in Parliament the Left didn’t even vote for it, and they fiercely criticised it. They were wrong, because I believe that in Hungary there are between 50,000 and 150,000 small business operators who really do provide services to members of the public. It was for those people that the KATA system was devised, and it’s for them that we’re retaining it. Furthermore, for them we’ll even increase the income limits, because prices are rising.
By the way, what you say about the Left is interesting, because they not only didn’t vote for it back then, but now they’re organising demonstrations for its retention. Isn’t this condition a little schizophrenic?
Well, it would be easy to say strong words and make jokes, but I prefer to approach this with empathy. They’ve lost to a two-thirds majority four times in a row. Their chances are what they are. Perhaps I could compare them to the proverbial snowball in this heatwave. In the campaign that we’ve had recently, they proved that they can’t be trusted with the country – and certainly not in wartime. Having lost the election they sat quietly in the corner. Now we see the first government measure that impacts negatively on those affected by it, who oppose these government decisions and who disagree with them. The Left are riding this wave, and they’ll ride every other wave. The left-wing opposition will ride the wave of any controversial measure, ride it and try to create an atmosphere of animosity towards the Government, and to profit politically from it. I can say that I understand this, but I think that it’s very bad politics. Because when there’s a wartime situation the solution is to unite, and we must move towards unity. This is why I’d also ask the KATA taxpayers to understand the current situation. This is why, in such a wartime situation, I ask members of households that benefit from reductions in their utility bills to understand the situation and to help us protect the country’s ability to function, people’s living standards, jobs and pensions. The right response to a wartime situation is unity, not political profiteering.
You’ve said repeatedly that what’s needed to break the back of wartime inflation and economic woes is peace. Yes, but there’s no let-up in the fighting on the fronts, and ever more NATO member countries are raising their armies’ levels of readiness – as has Hungary’s defence minister, who’s also ordered an increase in the armed forces’ readiness. Is this because of what’s happening on our eastern border, or on the southern border?
This is because of the war on the eastern border. Let’s avoid the word “mobilisation”, because in Hungarian that word means that civilians are also called up for service in the army, and there’s no question of that. But the word “mobilisation” can also be used for actions within the army, as the army has a state of peace and a state of preparation for war, a state of emergency. And now the army must be mobilised internally, development must be speeded up two or three times, and new resources must be allocated. In the next few days I’ll sign the decrees that will provide the army with additional resources, because NATO is also deploying new forces to the eastern border, and we must also have an appropriately strong presence there to defend our country and our borders. But we also have a southern border problem that we can no longer solve with the army. Up until now, the southern border problem has been the migration invasion, which must be stopped at the fence, where there’s an increase not only in the number of migrants and people crossing the border illegally, but also in their level of aggression. There are now armed confrontations on the Serbian side, and Hungarian border guards on our side are also being threatened with weapons. So the situation there is becoming more violent. So far we’ve dealt with it with the deployment of police officers and soldiers. We can’t use soldiers there any more, because in that case there won’t be any soldiers on the eastern border. So we need to get the soldiers back into training, back into a state of readiness, because there’s a war in a neighbouring country. In such circumstances using soldiers for border defence duties is a luxury. At the same time, the police will not be able to cope for long, because we’ve been deploying them from all over the country. This has been a good solution for a number of years. If the European Union hadn’t supported migration, we’d have been able to put this migration invasion behind us, and there wouldn’t be any more people crossing the border illegally, as the EU could have announced that it wouldn’t accept anyone, and if it didn’t accept anyone, there would be no point in migrants setting out. Yet the EU doesn’t say that, but the opposite: that it will take them in. Meanwhile we say that they won’t pass through our territory, and so these situations arise on our borders. The situation will remain like this in the longer term. So the solution up to now has been temporary, not permanent. I think I’ll be able to sign the decree on the creation of “border hunter” units this afternoon. We’ve started recruiting 2,000 border hunters. Their salaries have been set. This will also have an impact on the salaries of police officers and soldiers, pushing up the salaries of the police and the military, because the border guards – who will be trained to a lower level than our police and soldiers – won’t be able to earn more than police officers and soldiers, otherwise the order would be disrupted. So we have to adjust the salaries of police officers and soldiers to align with this new situation. In addition, we have to go from a force of 2,000 border hunters at present up to 4,000 in two years’ time. They’ll perform their duties within Hungary’s general police force, but they’ll be trained to a lower level in a narrower field of operation. We’re seeking to employ them on three-year contracts, and if after that period of time they’re still keen on their work and find it rewarding, if they like the job and the profession, they can stay longer and move from contract status to general employment status. Every day I read the reports from Frontex, which is the European institution responsible for border protection; according to these reports, so far this year the number of people crossing the border illegally has increased by 80 per cent compared with one year ago. The pressure is mounting, and Frontex itself says that the number one target or route is through the Balkans; and that Balkan route ends at the Hungarian fence.
Obviously one of the reasons for this is the food crisis, which is also partly caused by the war. And we can see that in many ways war is the cause and in many ways the aggravating factor for economic, migration and all sorts of other problems. So if this isn’t good for anyone, in whose interest is the continuation of this situation?
You mean the war?
It’s certainly not in our interest. It’s difficult to think positively about war, because if you look for the causes, it’s easy to make the mistake of seeing those who benefit from war as the cause of it. This isn’t always the case. Take China, for example. In terms of oil supplies, China was completely at the mercy of the Arab countries. It has hardly any production of its own, and has to import it from the Middle East. But now that the Europeans have decided to impose an oil embargo, all of a sudden Russian oil is going to China. So China is a beneficiary of this conflict, but it has nothing to do with the cause of the conflict. So we must be careful not to fall into the trap of conspiracy theories. One thing is certain: China’s winning, America isn’t losing, and Europe’s suffering. The people making a lot of money are the energy companies and certain businesspeople. Here we’re thinking of businesspeople like George Soros, who are straightforwardly arguing for continuation of the war, mobilising their networks and the journalists and analysts they pay, who are all arguing for continuation of the war and for it to be seen as a just war. But in fact the likes of George Soros are simply nothing more than warmongers. So I think that the interests which lie behind prolonging the war must be found somewhere among businesspeople and warmongers. What’s happening is certainly a disaster for Europe, and it’s extremely painful for Hungary as well. We’re working day and night on how to stay out of an unfortunate general situation in Europe, out of a worsening situation, and how to find a path along which Hungary will be less affected by the war’s negative consequences.
You’ve been listening to Prime Minister Viktor Orbán.