I. Short Overview
of the present Situation

Introduction

Impacts of the Austerity Measures on State Budget, Local Governments, Social Security and Social Welfare Expenses

State Budget Deficit
Cutbacks in Local Government Subsidies, Social Security Funds and Social Welfare Expenses
Lower Wages in the Market Sector
Deteriorating Balance of Trade and Statistical Distortions
Balance of Payments
Employment
Education
Black Economy
Taxes and Prices
Customs Policy and Other Protective Measures
Hungary’s Worsening Competitive Position, with Energy Policy in Focus

State Budget Balance

The austerity measures introduced in 1995 have failed to accomplish the expected objectives but, at the same time, compelled Hungarian people to bear the burdens and find themselves in a difficult situation. It would be very important that the results overweigh these burdens. Stabilisation of the state budget and the balance of payments is important, but it is time that the society and the economy in practice are given priority.

The new government elected in 1998 has recognised the need of a new economic scheme that has social issues in focus and attempts to establish social balance as well as boost economic growth. Nevertheless, the 1999 state budget still fails to take advantage of all the opportunities of accomplishing the objectives of the new economic policy.

Impacts of the Austerity Measures on State Budget,
Local Governments, Social Security
and Social Welfare Expenses

Our team has looked into the 1999 State Budget Bill (SBB) as part of the entire Hungarian economic policy, and considered real economic growth in the previous four years of government. We have compared the 1995, 1996 and 1997 real figures, the 1998 estimations as well as the projections of the SBB for 1999 to the real economic performance in 1994.

An Economic Stabilisation Programme called the "Bokros Package" (named after the Minister of Finance at that time) was launched in 1995 and was continued in 1996, 1997 and even in 1998 although government officials often said the opposite. There are signs of shifts in government proposals for 1999 but remarkable changes are yet to come.

State Budget Deficit

The rate of inflation in the past few years was higher than the budget forecast; therefore the cutbacks in expenditure were even larger than projected in the budget. (The only exception was the year 1998.) Consequently, the State Budget Deficit (not including privatisation revenues) reads as follows:

Table 1

State Budget Deficit
current prices, billion HUF

Adjusting the figures with the rate of inflation and calculating with 1998 prices, the improvement in the budget has been insignificant, especially when compared to the cutbacks of nearly HUF 7,000 billion. In other words, funds "have disappeared". (Hospital beds illustrate it best; their number has decreased without a single penny economised. What is more, several hospitals have gone or are close to being bankrupt.) At the same time, an overall deterioration can be seen in the society and its capability to function due to the large amounts cut down by the state.

Cutbacks in Local Government Subsidies, Social Security Funds and Social Welfare Expenses

We have analysed the following key components of the state budget at real value between 1994 and 1998 (the base year was 1994):

• State Pension Fund (Table 2),
• State Health Insurance Fund (Table 3),
• Local Governments (Table 4),
• state subsidies financed by the Social Security Funds of which "family allowance" represent an overwhelming share (Table 5),
• Governmental and other State Organisations (Table 6).

Tables 2 and 3

Cutbacks in Social Security Funds
current prices, billion HUF

*Prices of goods affecting pensioners the most were growing more dramatically than those of other products. (Prices of food and household energy grew by 31.1% and 50% respectively in 1995.)
**Prices of goods in close relation with the profile of the Health Insurance Fund were growing more dynamically. (Prices of medicine grew by 53.3% in 1995.)
***Real term rate of interest is 2%.
****The number of old-age pensioners grew by 1.6% in 1995, and a further 3.4% in 1996 compared to 1994.
Source: State Budget Bill of Hungary for the year 1998 (No. T/4832)

 Table 4

Cutbacks in Local Government Expenses in Real Terms
current prices, billion HUF

Source: State Budget Bill of Hungary for the year 1998 (No. T/4832)

Table 5

State Subsidies Financed by Social Security
current prices, billion HUF

Source: State Budget Bill of Hungary for the year 1998 (No. T/4832)

Table 6

Cutbacks in State Budget Expenses of Governmental Organisations
in Real Terms
current prices, billion HUF

Table 7 is a summary of figures in Tables 2, 3, 4, 5 and 6. It summarises the cutbacks, assumed interests and their totals.

Table 7

Summary Sheet of Cutbacks
(analysis of data from tables 2 – 6; using 1994 as the base year)
current prices, billion HUF

*at 1998 prices

 The summary sheet contains cutbacks only in the five key components of the state budget because impacts of the austerity measures in other areas or in the entire society are difficult to measure. Cutbacks (calculating also with the interests) in the five components totalled over HUF 6,000 billion in 1998. Another 1,000 billion comes from lower wages in the market sector (see below), which ends up in a total amount of cutbacks worth HUF 7,000 billion. We have only estimates as to the losses for the entire society, which, we suppose to go up to HUF 10,000 billion.

Lower Wages in the Market Sector

In addition to cuts having direct impact on the budget (all components in Tables 2-6), wages of employees working in the market sector fell by HUF 130 billion in real terms in 1995. The downward tendency did not stop, and wages dropped by another HUF 184 billion in 1996. Wages in 1997 were HUF 181 billion less in real terms than in 1994. (1998 data are not available yet, but supposedly wages moved closer to the 1994 level, so no further wage cuts are estimated.) The amount totalled around HUF 1,000 billion at 1998 prices (see Table 8). However, the state budget saw only a modest improvement whereas the income of businesses is also much less than the HUF 7000 billion taken away from the society.

Table 8

Pre-tax Income and Labour Costs of Companies
billion HUF

Source: Hungarian Central Statistical Bureau
*A new structure of income calculations was introduced in 1997.
Savings on Wages at 1998 prices (supposing 0 in 1998) totals HUF 1,052 billion (USD 4.87 million at an exchange rat of 216 HUF/USD).

Deteriorating Balance of Trade and
Statistical Distortions

We have used customs statistics (not including industrial free zones) for calculating the balance of trade for several reasons.

• This method complies with EU standards.
• Base data of 1994 come from customs statistics; data involving industrial free zones are not available for 1994, therefore the data are not comparable for that year.
• Trade reflected by customs statistics is an intrinsic part of the economy (its exports pay for imports of energy supplies and pharmaceutical products, it produces the surplus of food industry, etc.)
• We have analysed figures of trade in the various economic branches (exports, imports and balances) within the customs boundaries and in industrial free zones. Tables 9a, 9b and 9c illustrate that imports of free zones are relatively high, and their operations are concentrated on a few areas only. They have weak and occasional links with the Hungarian economy. The ratios indicated are gross figures, which suggests a high contribution of imports; whereas they are involved in producing large quantities without significance for Hungary.
• Companies operating in industrial free zones receive preferential treatment:

  – corporate tax amounts to 0.5% as compared to the generated value added by companies operating in free zones, whereas other companies have a ratio of 2.6%. (By the way, most of the value added leaves the country in the form of profits, so it is only a temporary and formal factor in increasing the GDP in Hungary.);

  – the ratio can be expressed in term of tax relieves, which goes up to 10.1% for companies operating in free zones and only 3.4% for other companies;

  – companies operating in the free zones receive considerable government subsidies;

  – wages and related expenses represent 5.2% in companies operating in the free zones and 17.1% in other companies in Hungary. However, most of the state revenues comes from taxes and fees charged on wages, and also consumer taxes that are generated by spending those wages. Consequently, the relative contribution of companies operating in the free zones is fifteen times less than that of other companies.

• New projects or capital investments in the free zones do not create a significant number of jobs or contribute to the GDP but rather bring about further problems. The profits are high, but they leave the country soon. At the same time, GNP measures the goods and services available in an economy at a period of time. GNP is generated from GDP by excluding the income on investment in Hungary by foreign companies and including the income of Hungarian investment abroad. In 1998 lower GNP is expected than GDP by 10%. Besides it is much clearer, GNP has a practical advantage for Hungary: all payments into EU budgets are made on the basis of GNP (and not GDP), which would save Hungary around 100 million Euros a year.
• There are two major items representing the outflow of income in the accounts of the Hungarian National Bank: one of them is debt service, and the other one is repatriated income. The latter one saw a twofold increase in 1998 compared to the previous year, and it was nearly USD 1 billion. It is vital, therefore, to restructure subsidies of foreign capital investments and prefer the ones that provide long term jobs in labour-intensive production.

(A more detailed analysis of the above can be found in a publication – 1997/7 - of the Economic Analysis and Information Institute of the Hungarian Central Statistical Bureau.)

Table 9a

Exports by Industrial Sector
broken down by industrial free zones
million USD

* base figures from the months of January through September 1998 are deducted

Table 9b

Imports by Industrial Sector
broken down by industrial free zones
million USD

* base figures from the months of January through September 1998 are deducted

Table 9c

Balance of Trade by Industrial Sectors
broken down by industrial free zones
million USD

Chapters above discuss the details of the cutbacks worth HUF 6,000 billion in the state sector between 1995 and 1998 (using 1994 as the base year and at 1998 prices). Supposing all the cutbacks had been moved into the balance of trade to improve it, it would have shown a surplus of USD 4.4 billion (HUF 950 billion) in 1998. Additionally, wages worth HUF 1,050 billion were "saved" a result of the austerity measures during the same period (also using 1994 as the base year and at 1998 prices). The amount would have improved the balance of trade by USD 4.5 billion in 1998.

On the other hand, customs statistics (not including free zones) estimate a deficit of USD 4.5 billion for 1998. The balance shows a trade deficit of USD 2.7 billion even after including free zones into the estimates (see Table 10). The deficit in real terms must be higher due to the drop in energy prices and variations in the cross currency rates.

Table 10

Volume of Trade by Free Zones and Customs Statistics
million USD

Source: Exports-Imports Statistics, preliminary estimates for 1998

Table 10 illustrates the expected improvement in the balance of trade from the cutbacks and the actual balance (both at the official exchange rates). Table 11 gives an outline of the balance over the past five years within the customs boundaries (that is excluding free zones) of Hungary in USD, DEM and ECU. It provides a clear picture of the real deterioration of the trade balance since it eliminates variations in cross currency rates that distort the picture expressed in one currency only. Further distortions come from prices of imported energy that fell radically in 1998, and the volume of imports that expanded, increasing the deficit by USD 500 million. All in all, the trade deficit went up from USD 2.5 billion in 1995 to 4.5 billion in 1998. However, in real terms (i.e. after adjustments are made to reflect the drop in energy prices and variations in the cross currency rates) the deficit is around USD 6 billion.

Table 11

Balance of Trade within Customs Boundaries of Hungary
(not including free zones)

The last line of Table 11 is adjusted to make it comparable to data from 1997. The adjustment is necessary to offset the impacts of energy imports: 1) the huge drop in prices, and 2) an increase of imported volumes by 40 PJ, which total over USD 500 million.

Variations in cross currency rates also distort the picture. The bulk of exports and imports in Hungary are done with countries linked to the exchange rate of the ECU, but the trade turnover is still computed in US dollars. (Of course, once statistics are made in Euros, the impact of cross rates will become less significant.) The impact between 1997 and 1998 is 1.3%, or a few hundred million dollars in the balance of trade. However, it becomes more substantial, 22.7% between 1995 and 1998, which ends up in a deficit growth expressed in billions of dollars. It is major enough to be included in all reasonable calculations and analyses, even if it causes worry and inconvenience.

It is important to devote a few words to trade statistics and their compliance to EU standards. Statistical methods and tools as a whole have been adjusted to meet EU requirements, with the exception of foreign trade where industrial free zones were included among data files in January 1997. The Hungarian government has expressed its ambition to sustain free zones even after joining the EU for another year at least.

The impact of cross currency rate variations may take some people by surprise but it will, by all means, become evident when Hungary starts to keep records of statistics in Euros instead of US dollars.

The above figures support our conclusion that the austerity measures hardly had any impact on the balance of trade. (Additional customs duties, introduced at the same time, had reducing imports.)

The austerity measures have not affected the operations of industrial free zones, which is another reason to exclude them from trade balance calculations. Including industrial free zones into the statistics of trade within the customs boundaries makes statistics less clear and unreliable. Kopint Datorg (an economic research firm) published a study discussing the state of the economy in 1998 saying: "It is important to note that since 1997 trade statistics have included free zones but ignored trade between the free zones and the area within the customs boundaries. Since then no information has been available about the contribution of areas within the customs boundaries to the exports of the free zones, and further processing or use of products within the customs boundaries." Unofficial but reliable calculations reveal that the amount could reach USD 100 million or so a year.

The austerity measures have hit the lower tenths of the population the hardest. (Note: consumers / households are divided into ten groups when statistics are compiled on the use of income.) At the same time, the lower tenths primarily consume domestic products, whereas the higher income the households have, the higher is the share of imported goods in the consumption. The austerity measures hit mostly the lower tenths of the population (e.g. those who have lost income from lower child care benefits or pension) therefore the consumption of the domestic goods decreased. The higher tenths earn more money (especially in the market sector) that they spend on imported goods as well, which, hand in hand with the impacts of abolishing and/or shrinking customs duties, boosts imports.

Balance of Payments

Data included in the balance of payments are not entirely reliable for various reasons. State, local governmental and even private property of immense value has been sold chiefly to foreign owners. Foreign exchange revenues from the sales of property improve the balance of payments, but at the same time, distort it since such revenues are only generated once. Consequently, the balance of payments needs to be adjusted by revenues worth USD 10 billion for the period between 1992 (the year of first sales) and today. The Central Statistical Office has not provided complete data about the sales even in retrospect; as a rule they publish data with at least two or three years’ delay. Recent estimations say foreigners have purchased large areas of private land in the West of Hungary, although laws prohibit selling land to foreign owners. The National Bank of Hungary (NBH) must be aware of the prices of those transactions, i.e. USD 1 billion, for most of that amount was converted into forints. Some of the foreign currency received have "vanished". It should also be noted that sales of property, by its nature, is not recurring, and revenues from the sales will not improve the balance in the coming years. (Politicians tend to highlight only the benefits of those revenues.)

Net foreign exchange revenues from tourism have surged over recent years although its real performance (expressed in nights spent in Hungary) has been stagnant. The reason for the increase is found in the series of measures by banks to reduce real interest rates on foreign exchange and give premium interest rates on the national currency. It ends up in higher interest burdens in the state budget, financed, of course, by Hungarian taxpayers. Another adverse impact of the measures is that they attract "hot" money from dubious foreign sources, seemingly creating a balance. (Real, though temporary, revenues stem from the decrease in foreign currency retail savings in real terms, which will be reflected in a relative drop in foreign exchange revenues in a few years.)

The balance of payments may deteriorate for various reasons.

Deficit of trading within the customs boundaries of Hungary are offset by uncertain, speculative foreign exchange funds that are attracted by high interests (settled in the national currency at an annual 6% interest rate in real terms). By cutting high rates of interests, Hungary may run the risk of losing foreign investment because investors are only willing to stay if their assumed risks are compensated by higher returns from interest rates. They provoke turmoil to reflect the long-lasting international economic recession in the Hungarian environment, which is best manifested in fluctuations of the Budapest Stock Exchange. Another aggravating factor is the repatriation of profits generated by investments in Hungary, directly and indirectly promoted by allowances and subsidies granted by the government. A warning signal is that the amount of profits leaving the country doubled in 1998 as compared to 1997.

Hungary tops the list of direct foreign investment in developing countries in relative and absolute terms as well (see Table 50). This position suggests that the current pace of investments is likely to slow down in the future.

Hungary’s monetary policy has failed to observe international standards when it directed various funds (such as pension funds) to purchase government bonds. First of all, the way it is done today cannot last long. Second, the money invested in those funds may leave the country with slight chances of ever coming back, which puts deposit-holders and investors into an uncertain position. The only way savings can be kept in Hungary is to increase interest rates on forint deposits, which, in turn, destroys the balance of the state budget and payments. Estimates about projected sources of pension funds stand as perfect examples. And there is a further risk that funds actually raised will well exceed projected figures.

Financial crisis in developed economies has adverse impacts on Hungary’s economic policy very much focused on the fiscal, monetary aspects. The crisis may jeopardise its feasibility and sustainability. Therefore, and for other good reasons, a new, more beneficial economic policy needs to be implemented that shifts from fiscal aspects to real economic improvement. Our proposals are meant to serve that purpose.

Employment

Because of the so-called Bokros package the standard of living was worsening not only because of the decline of wages in real terms, but also because of decreasing employment figures: official statistics reveal that 155 thousand jobs ceased in 1995, another 100 thousand in 1996 and a further 100 thousand in 1997. This added another HUF 103 billion (at 1996 prices) to the state budget deficit by the end of 1996 because:

• HUF 44 billion were not collected by social security and other funds,
• HUF 20 billion of personal income tax were lost;
• HUF 39 billion had to be paid for the unemployed in forms of allowances and other assistance.

The total loss of 355 thousand jobs over a relatively short three-year period is a torture not only for the individuals who lose their jobs but also for the entire economy.

• We estimate that the total "worth" of manpower in Hungary is 10 times higher than the accumulated annual gross wages. Therefore, one person is "worth" HUF 5.5 million forints; i.e. skills and experience of 355 thousand people worth HUF 2,000 billion are lost. Using an analogue based on accelerated depreciation we have found that in the first year of their unemployment 30% of that value is lost, in the second – 20% and in the third – a further 10%.

• Nearly 1.1 million jobs ceased between 1989 and 1996 (see Figure 1). This means an increase over 30% in per capita social expenses. We feel it is a waste of Hungary’s most important resources – well-trained, well-performing human resources, which is Hungary’s most competitive resource due to its relative cheapness in the international market.

Figure 1

Number of Active Earners
1988 – 1997

Source: Statistical Yearbook of Hungary 1997

Underemployment in 1997 went down to a critical value that itself slowed down the rate of losing jobs. However, another 100 thousand jobs ceased that year. The government had the pressing task to stop further increase of unemployment, or rather create new opportunities of employment. The rate of employment did not show spectacular improvement in 1998 either; there was a temporary increase but insignificant for statistical purposes. The methods used for compiling statistics is also questionable; those who earn some money for even 1 hour work during the week observed are regarded "employed" by the statistics. A further distortion comes from poor registration of around 50 thousand foreign residents (mostly running their own businesses) whose income is exceptionally high as a rule and may lead to miscalculations of average salaries and wages.

Official statistics and statements tend to mix up the rate of employment with that of unemployment. Table 12 is meant to clarify the difference and show the actual weight of the problem; it illustrates employment and unemployment rates in Hungary and developed countries of the world.

Table 12

Rate of Employment and Unemployment in Selected Countries and Regions

Source: Statistical Yearbook of Hungary, 1997 – data on Hungary,

Employment Rates Report 1998, Commission of the European Communities – data on the EU, USA and Japan.

Table 12 shows that though official unemployment figures are better in Hungary than in the EU, the rate of employment suggests that Hungary is far behind the EU. (In some instances jobless people are not registered at all because they stand no chances to get a job.) The nominal value and the rate of latent unemployment, not included in the statistics, have recently swelled but it did not prevent reports (e.g. reports of the Ministry of Finance) from concluding that unemployment rates and ratios are better than those of EU countries.

EU countries have launched a well-prepared, unified scheme to increase the number of available jobs and combat unemployment. (Appendix 1 gives an outline of employment concepts for 1999 in the EU.) Hungary should also adopt the scheme and implement measures complying with it, which would facilitate Hungary’s EU membership. Or, as matters stand now, the low rates of employment may impair Hungary’s ability to join the EU that will fear that jobless Hungarians will seek job opportunities in other countries of Europe.

Hungary is an open economy and getting even more open as a consequence of lower customs duties. Imports from the EU can get easy access into Hungary, which may jeopardise existing jobs in the country, or leave only opportunities to do the very simple work for low wages, deteriorating earnings. It can only be avoided if a scheme (even more effective than in the EU) is introduced to increase the rate of employment. Research and development should be given priority in the scheme for R&D is the engine that pulls the economy ahead by its positive multiplicator effect and usefulness for the entire society.

The issue of employment has been given priority even in countries where the number of active earners is higher than in Hungary.

Low rates of employment involve several problems to be solved.

• Low rates of employment together with the average income that is only the tenth of developed countries result in exceptionally small income in an average family in Hungary.
• The comparative advantage of low costs of labour is less exploited.
• Long-term unemployment destroys available human resources (skills and knowledge become obsolete, adverse psychological impacts, etc.).
• The labour force leaves the labour market, which is good for statistics because it seems as if the rate of unemployment were below the rate in EU countries, but it is nothing but distorting the real picture.
• Low rates of employment may prevent Hungary from joining the EU.

In conclusion, employment problems and measures to eliminate them in the EU suggest that steps should be taken to open up new job opportunities (several hundreds of thousands) in Hungary as well, or else Hungary’s EU membership may be in peril.

Education

Links between employment and education are obvious and strong. The need for well-qualified labour force is already immense, and is getting even more so in the future. The share of well-qualified professionals increases each year by 3.1, 2 and 2.5% in Canada, Japan and Germany respectively. Detailed surveys conclude that industries that invest the most into scientific research and apply new methods among the first ones are rich in human resources and improve their performance and competitive position by using the expertise and innovations. Products with high "intellectual content" are in demand in the international market while material-intensive goods are losing their value. Those trends in developed countries could serve as a lesson to learn from in less developed countries as well in terms of education and employment policies. (See Table 13.)

Table 13

Employment by Qualifications
(average annual rate of increase)

Source: OECD (STI/EAS Division), quoted by OMFB–MTA Világgazdasági Kutató Intézet (Economic Research Institute)
¹ High qualifications include:
ISCO-88 Group I – legislators, senior associates, and managers;
ISCO-88 Group II – qualified employees;
ISCO-88 Group III – technicians and teachers.
² In Germany ISCO-88 Group I does not include managers and ISCO-88 Group III does not include teachers; therefore high qualifications are underestimated in the table for Germany.

Key deficiencies of the employment policy in Hungary over the past few years have been its financial focus and the lack of selectivity, which have led to a radical cutback in the number of jobs in education, for instance. In 1994, the total number of staff employed in education was 336,800 while in September 1998, it was only 225,200, representing a reduction by 113,000, i.e. one third. Austerity measures have hit education the hardest: real wages went down dramatically, which necessarily affects the quality of education. Some say financial considerations must be present in education, which, unfortunately, may prove to end up in lower quality standards. Other countries thinking in the long run are improving education to make it one of the leading and most profitable sectors in the future. In Canada, education is given priority and 21 thousand new jobs were opened in 1995. Education and training is getting more important in Great Britain and France as well. The US exported education and training facilities and services of USD 7 billion in 1995. (Source: Hungarian daily Világgazdaság, 18 February 1999.)

Black Economy

Growing unemployment has been further aggravated by the state budget reform initiated by the government but not yet legally adopted since both interest groups and the parliament have been against it in its present form. The costs of more and more welfare services are charged directly to people who have already paid for them some ways, and at the same time, state support has been significantly cut. As a consequence, the quality of life in Hungary has deteriorated, which is not reflected in the official statistics. Savings do not come from the pockets of the obedient public, rather from the growing black and grey economy.

The economic boom, started in 1994, stopped up until 1997, and investment fell. Although new shopping centres have been erected all over the country, they do not contribute to economic development for most of them fail to bring the expected benefits, or even do more harm by putting retailers into a disastrous situation and damaging the surrounding environment. (Appendix 8 has more details about shopping centres.) Industrial output (without the energy sector) has also dropped temporarily. The stagnation and the slight decline of the economy can explain the bulk of the improvement of the external balance of payments. Therefore, most of the austerity measures have not been justified or necessary at all, and re-allocated income has only been passed on to the black economy and the foreign money laundry. The harmful effects of the "Bokros Package" on the entire economy are also reflected by worsening ratios: terms of trade improved by over 2% both in 1993 and 1994, however, it fell to 1% in 1995 and further 2 percentage points in 1996 (using customs statistics).

Consequently, trade deficit is basically unchanged despite the fact that austerity measures damaged economic performance and the state of the society. (Note: part of the deficit in 1995 comes from imports accelerated before the introduction of additional customs duties could take effect.) Trade deficit has started to grow since 1997 and it has been accelerated in 1998.

Measures against the expanding black economy were introduced early 1997. The police, customs authorities and legislation were designated for the purpose. However, the lack of specific proposals and figures (even in the 1998 State Budget Act), poor enforcement of existing laws and hesitation in implementing more severe legislation have prevented the fight against the black economy being successful. Improvement is hardly seen in the everyday life.

Economic growth started in 1997, but it is questionable how real and sustainable that growth is today. Dynamic, though superficial, expansion can only be seen in the output and exports of industrial free zones that are isolated from the economy as a whole.

Taxes and Prices

Recent years have seen changes in the taxation and pricing systems, and that change has reinforced the old-fashioned and wasteful structure of the Hungarian economy. Real prices of electric energy and natural gas for industrial use dropped by roughly 20% between late 1991 and 1997. Prices of energy for industrial users expressed in US dollars as of October 1997 are not more than 80% of those charged in November 1991 even after several price rises in the national currency. Whereas energy prices (also in US dollars) for household use doubled in that period.

However high they seem, prices of motor vehicle fuels have also moved down in real terms over the previous years because the rate of increasing the consumer tax imposed on fuels have been lower than the rate of inflation year by year. Subsequent state budget revenues have also dropped in real terms (see Table 14). Costs of labour, on the other hand, have increased considerably between 1991 and 1997. Job opportunities have shrunk by 1.1 million since 1989 whereas the total sum of taxes and other charges (personal income tax, social security tax) have not seen any change; employees are more heavily hit by taxes than before (see Table 15). This must be especially true of people on payroll and even "truer" of state employees, who earn their living without additional sources of income and are unable to hide income from tax authorities. Real income of state employees went down by 50% between 1990 and 1997.

Table 14

State Revenues from Labour Taxes, Excise Duties, Consumer
and Other Types of Taxes
current prices, billion HUF