Hungary effectively dismantled its pension reform

“Hungary effectively dismantled its pension reform. Hungarian lawmakers voted to roll back a 1997 reform of pensions on Monday, effectively allowing the government to seize up to 10 billion euros in private pension assets to cut the budget deficit while avoiding austerity measures.

Parliament passed the pension legislation with 250 votes for, 58 votes against and 43 abstentions. Orban’s ruling Fidesz party has a two-thirds parliamentary majority.

The legislation imposes stiff penalties on Hungarians who do not transfer their pension assets back into the state system by the end of January.

The government will sell the assets and use the income to cut debt, plug holes in the state pension fund and create room for tax cuts for households and small companies.

By plugging its budget shortfall with the pension funds and new taxes on banks and mostly foreign-owned businesses, Orban has promised to end years of austerity and bolstered the popularity of his right-of-centre Fidesz party in opinion polls.

But the strategy – which also includes regaining “financial sovereignty” by ending a 20 billion euro safety net deal with the European Union and the International Monetary Fund – has worried investors, caused losses in Hungarian assets, and prompted a downgrade by Moody’s ratings agency last week to Baa3, the lowest investment grade. […]”