This is the size of the new Orbán package

After a brief fiasco on his Facebook page, Viktor Orbán has announced a five-point package of measures aimed at mitigating the economic fallout from COVID-19 on Wednesday. In a flash assessment we have stated that while the direction is good, the programme is too narrow and more measures would be necessary. 

Portfolio has estimated the fiscal impact of the contribution reduction and tax waiver measures (4th point), and these numbers reaffirm our view that these will not be enough. It also seems certain, though, that the cabinet is aware of this and new steps are likely to be announced shortly. 

Taking data by the Central Statistical Office (KSH) as the basis, we find that the accommodation/catering sector gives job to 120,000 people and 43,000 people are in the entertainment and cultural sectors in Hungary. If we know their three-month wage bill (number of employed and their gross average wage), we can also calculate the impact of the contribution cuts and benefits on budget revenues. 

The assistance to be provided for the former sector will cost HUF 31 billion and the latter HUF 6 billion, Portfolio estimates. 

We need to note at this point that other statistics (by tourims agencies, for instance) show that 480,000 people work in tourism. If that case the aforementioned measure would put a HUF 127 bn dent into the budget. 

On top of the impact stemming from the above measures we also need to take into consideration the three-month suspension of the tourism development contribution that is estimated to strip the budget of HUF 9 billion revenue (in view of the government's HUF 36 billion full-year revenue estimate). 

The third measure aimed at lowering tax burdens is a three-month exemption of taxi drivers from paying kata (itemised tax for small taxpayers). The negative budgetary impact of this would be only a few hundreds of millions of forints, so the total size of the package is not really affected by it. 

Overall, the measures announced on Wednesday would lower budget revenues by between HUF 45 bn and HUF 50 bn. Or, depending the number of people actually working in tourism, the total blow could be up to HUF 140 billion. 

this corresponds to 0.1% or 0.3% of this year's gdp estimate (which will be thrown out due to the coronavirus) that is dwarfed by the czech package amounting to 2% of gdp or poland's stimulus scheme tantamount to 16% of gdp.

The point is that we should expect additional measures to be announced. 

We need to highlight that the Finance Ministry is in an extremely difficult position. The COVID-19 pandemic has wiped out all official prognoses that were safe and sound only a few weeks ago. Economic estimates are overwritten globally almost on a daily basis, depending on what damages the coronavirus is causing to economic agents, how rigorous containment measures are and how long they will remain in effect. In such an environment it is most difficult to plan ahead and come up with accurate estimates. And what's even more important is that the new macroeconomic environment will be a lot worse (no one knows exactly how much worse) than what the government had envisaged. And the outlook on a potential recession per se narrows the cabinet's wiggle room (see our relevant article here). Our latest survey of analysts also show that the Hungarian economy will practically come to a halt this year that will lead to a total revision of 2020 budget plans. 

In such an environment it is totally understandable that the government wants to progress carefully when announcing measures aimed at restarting the economy. There is a risk in that approach, though. The steps announced gradually may not do the trick. In other words, what appeared sufficient yesterday (or it didn't even then) may prove insufficient tomorrow. And this will make the contagion of the economy inevitable. 

Cover photo: MTI/Prime Minister's Press Office