The Orbán government's announcement in parliament of its action plan setting out economic policy was awaited with tense anticipation, the announcement having taken place after a three-day extraordinary session in Lovasberény. Although according to the experts the state budget would have made it possible, the government still did not begin its action plan by announcing a supplementary budget.

The same experts had expected that by submitting supplementary estimates the cabinet could have at least begun with a clean slate. After the confusing statements over the past few weeks it is still not possible to establish just how many skeletons and how big the holes were the fact finding committee led by state-secretary Mihály Varga found in the state budget this year after the transfer of ministries. The size can only be estimated on the basis of the action plan.  

The 29-point package contains cuts and reliefs at the same time. As far as the taxation system is concerned it is primarily employees with families who will benefit, as they will be placed in a favourable position by the government's introduction of a 16-percent family single bracket. (The loss to the state budget incurred by this measure alone could amount to 150-200 billion forints). According to Szabolcs Vámosi-Nagy, a tax expert for Ernst & Young, the single bracket tax is in any case the most significant change in the tax package, although a great many details have to be clarified before it can be ascertained how all of this will work. What is certain is that the single bracket tax generally benefits the middle and upper income groups.   

However, some bad news for those earning the minimum wage is the gradual phasing out of the tax refund measures over the next two years. At the same time, the state would abolish- in the case of family inheritance - the tax levied on the movement of property between people related by direct line of descent.  

The good news for small and medium sized companies is that the upper limit for the corporation tax base will be raised to 500 million forints, while the rate of the tax bracket will be reduced from 19 to 10 percent and 10 minor taxes will be taken out of the tax system in one swoop. The question is how many businesses can profit from a reduction of corporation tax since on paper 30 percent of small and medium sized companies operate at a loss in any case.   

In effect, the companies of "productive capitalism" are at the centre of the economic action plan. They would be put into a favourable position by the Orbán cabinet's cuts in state beaurocracy, the annulment of a third of permits issued by state authorities connected to development projects, and expanding the scope of the Széchenyi Card credit facility. Small producers would expressly benefit from the state returning to them the right to make fruit brandy "after 90 years of struggle" (though what Europe will say about this is another matter) and the state will also make the opportunities to process and distribute foodstuffs significantly easier. (The measure aroused some laughter on the back benches in parliament.) It will no longer be necessary for landlords letting out property to become entrepreneurs.   

The new economic era will affect the state sector too. In line with this, the government will introduce caps on expenses incurred by state and budget institutions and examine wage and similar type expenditure. It also hopes to save 120 billion forints by supervising and terminating external contracts, and by outsourcing in general.

A ceiling of two million forints gross will be introduced in regard to the salaries of state companies and this will also be extended to the president of the Central Bank, András Simon, who presently earns 8 million forints. (The measure is more of a gesture as it will only affect a few dozen top managers). The government will impose a 98 percent tax on severance pay beyond 60 days and bonuses on top of salaries including allowances paid in lieu of paid leave and secrecy. (According to Orbán, the government will create the constitutional basis for the measures.) The number of directorates in state companies will be reduced to a tenth - from one hundred to a total of ten - and of the 630 supervisory committees only 450 will be retained.

The wage bill management that the government has announced will save it over 48 billion forints. The announcement of a streamlined parliament means that the new prime minister will be placing the political parties on a diet too by cutting the level of state support to them by 15 percent. Budgetary supervisors will be sent out to institutions that handle significant amounts of public funds and such institutions will no longer be allowed to purchase furniture and vehicles at the state's expense. Only one new state institution will be established: the National Asset Management Association will deal with the asset management of flats and property with foreclosed mortgages.

The government will not be sparing the financial sector either: since at the beginning of his speech Viktor Orbán placed special emphasis on the application of the principle in economic life of accepting mutual responsibility, it was anticipated on the basis of earlier news that the public sector which produced pre-tax earnings of 365 billion forints will be thoroughly held to ransom.  

To this effect, the 13-billion-forint bank tax assessment planned for this year will be replaced by a 200 billion tax, which applies to banks as well as insurance and financial leasing companies. Negotiations and agreements are ongoing in regard to the extent of the payments that each segment and player will be obliged to make.

The picture is not clear in regard to the scheduling of the 200-billion-forint surtax. It appears that the taxation will not only apply to this year: according to Viktor Orbán, the introduction of the banking tax would take place over three years and there would be another three years available for its phasing out. The prime minister has attempted to fend off any charge in advance that these measures are motivated by a desire for revenge: As he stated: "the government has taken decisive steps to prevent an anti-bank atmosphere", since without an efficiently operating banking system the country cannot be successful.

The purpose of the government's proposal for the creation of an asset management association is to manage residential mortgage-backed securities with failed payments. As far as the foreign currency-based credit over the last few years that has caused such a mess is concerned: that type of financial transaction will be finally abolished so that in the future it will only be possible to apply for forint-based mortgages. It did not transpire when the new regulation will be introduced.

The final measures of the programme are essentially designed to improve people's lives: "in order to stop Europe's wave of junk food flooding into Hungary" the government has proposed a secondary examination of foodstuffs. For a population struggling with the continuously rising costs of public works in recent years it is good news that a moratorium will be ordered on the fees charged for public utilities. Evictions are also to be stopped for good: firstly, a moratorium will be introduced on evictions by 31 December 2010, while negotiations will begin in regard to establishing a mortgage loaning system prohibiting eviction as a punitive measure.  

According to a hastily prepared calculation, the introduction of Viktor Orbán's host of measures will not make a big hole in the budget: The biggest outlay will be the 16 percent single tax bracket to a value of some 150-200 billion forints. The cuts in expenditure announced in parallel with relief measures will almost cover this.