Identifier
Created
Classification
Origin
06BUDAPEST698
2006-04-05 15:59:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Budapest
Cable title:  

HUNGARY'S ELECTIONS: PROMISING CAKE TO PENSIONERS

Tags:  PGOV KDEM SOCI HU 
pdf how-to read a cable
VZCZCXRO3284
RR RUEHAG RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN RUEHLZ
RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHUP #0698/01 0951559
ZNR UUUUU ZZH
R 051559Z APR 06 ZDK
FM AMEMBASSY BUDAPEST
TO RUEHC/SECSTATE WASHDC 8926
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
UNCLAS SECTION 01 OF 03 BUDAPEST 000698 

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EUR/NCE MICHELLE LABONTE

E.O. 12958: N/A
TAGS: PGOV KDEM SOCI HU
SUBJECT: HUNGARY'S ELECTIONS: PROMISING CAKE TO PENSIONERS
(C-RE6-00145)

REF: STATE 22644

-------
Summary
-------

UNCLAS SECTION 01 OF 03 BUDAPEST 000698

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EUR/NCE MICHELLE LABONTE

E.O. 12958: N/A
TAGS: PGOV KDEM SOCI HU
SUBJECT: HUNGARY'S ELECTIONS: PROMISING CAKE TO PENSIONERS
(C-RE6-00145)

REF: STATE 22644

--------------
Summary
--------------


1. (U) This cable examines the likely role of pensioners in
this spring's elections, and the issues most likely to unite
them. Pensioners are a large and growing segment of
Hungary's voting population. As elsewhere, they turn out at
the polls more regularly than younger voters. Today's
pensioners care about pension security; purchasing power, and
targeted price supports for pharmaceuticals, transportation
and other services. The more critical, longer-term issues of
raising the retirement age and strengthening the role of
private retirement accounts have not entered into the
campaign.

--------------
Actuarial Realities
--------------


2. (U) Hungarian pensioners are the largest segment of the
electorate -- and an expanding one. In 2004, the average
Hungarian couple had just 1.28 children. The average age of
a Hungarian is 47 years old and rising. A recent overview of
the pensions issue by center-right news daily Magyar Nemzet
quotes insurance-industry experts as saying that in 1990,
contributions by 5.4 million workers were financing the
pensions of 2.5 million retirees. The two groups are
expected to be equal in size around 2010, while the 1990
proportion should be reversed by 2020. According the Central
Statistical Office, in 2005 there were 3,036,000 pensioners
and 3.9 million workers. However, in January 2006, Corvinus
University sociology professor Tamas Bartus claimed to
Emboffs that pensioners already outnumbered workers. Sixteen
percent of Hungary's population today is over 65 years old,
recalls Prime Minister Ferenc Gyurcsany in his 2005 book,
Mid-Journey.


3. (U) While figures vary, Hungary's population is indeed
aging, and policymakers will not long be able to ignore that
fact. Indeed, Hungary introduced optional private retirement
plans to supplement state pensions as early as 1977.
Nonetheless, fiscal hawks charge that incentives to
participate in such plans are too weak, even while
acknowledging that today's workers fail to use current
opportunities to the fullest. Today's pensioners eschew the
risk involved in personal accounts, preferring a guaranteed

state pension. Despite occasional admonishments by officials
to invest in such private accounts, Hungarian savings rates
remain low.


4. (SBU) The current government has left the overall pension
system essentially unchanged over its past four years in
office. In reviewing its achievements, MSZP's
pensioner-targeted campaign literature has focused on the
gradual introduction of a "thirteenth-month" pension payment
over the current term. That same literature claims a
30-percent rise in pensioner purchasing power between 2001
and 2006, and successive pension increases of 13.1 percent,
9.6 percent and 8.4 percent in 2003, 2004 and 2005,
respectively. According to this view, the lot of pensioners
has been steadily improving, and the party hopes they will
remember that at the ballot box.


5. (U) However, perceptions by retirees themselves may
differ. For many pensioners, the growing gap between the
average pension and the average working income is a source of
anxiety. Under the current "Swiss-indexation" method
currently used to recalculate pensions annually,
cost-of-living increases equal only half the rate of
inflation. Moreover, as working Hungarians scramble to match
EU-15 living standards, today's state pensions are looking
increasingly inadequate as a basis for future financial
security. For example, one insurance company calculates that
those who retire after January 1, 2013 with an average
monthly income of HUF 150,000 (USD 714) can expect to receive
a monthly state pension of some HUF 73,000 (USD 348). ("Do
you know how little that is in Euros?" FIDESZ pensioner group
president Dr. Pal Aszodi asked Emboffs.) Many others live
below that level today. According to National Retirees
Representative Agency (Nyugdijasok Orszagos Kepviselet)
president Ervin Mihalovits, there are some 800,000 pensioners
living on HUF 50,000 to 60,000/month (USD 238 to 286/month)
and an additional 20,000 living on a scant HUF 30,000/month
(USD 143). Hungarian retirees also receive transportation
and other subsidies.


BUDAPEST 00000698 002 OF 003



6. (U) Beyond the perceptions, Hungary's retirement system is
ill-prepared to service an aging population. Frequent
tinkering by successive governments over the past twenty
years has failed to address larger issues affecting the
retirement system. Risk-averse Hungarians remain reluctant
to invest in personal retirement accounts, suggesting that
incentives may need beefing up. The retirement age
(currently 62 for both men and women) is probably
unsustainable, given Hungary's aging population. Some
systemic inequities have resulted from periodic changes in
the method of calculating pensions: for example, as
Mihalovits explained to Emboffs, those who retired prior to
1989 did so on more disadvantaged terms than those who
stopped working later, and former collective-farm employees
have especially pathetic pensions. Moreover, the common
practice of underreporting one's earned income leaves today's
system underfunded and tomorrow's retirees shortchanged,
since future pensions are calculated based on reported
income. In his book (Mid-Journey),the current PM has
proposed establishing a higher universal minimal monthly
state pension, perhaps of HUF 30,000 (USD 143),with
additional benefits contingent on private savings plans.
(Note: Since 2004, the current minimum pension has been HUF
23,200, or USD 110.) However, Gyurcsany also put the cost of
such systemic reform at HUF 1 trillion (USD 4.76 billion),
and thus advocates gradual implementation. Unsurprisingly,
no such proposal has appeared in his campaign speeches.

--------------
Campaign Promises: More Cake and Candles
--------------


7. (U) So far, Hungary's political class has done little to
retool the system, offering band-aids in campaign season and
less afterwards. In the 2002 campaign, MSZP promised a
"thirteenth-month" pension, and currently FIDESZ is promising
a fourteenth month on top of that. (When asked, neither
Mihalovits nor Somsak thought such promises alone would sway
older voters.) Also in the current campaign, PM Gyurcsany
(MSZP) has pledged (1) to lower the age for free train and
bus travel from 65 to 62, (2) to allow early retirement to
those aged 55 and older who have been out of work for two
years, and (3) to offer special "one-off" bonus payments of
HUF 90,000, 95,000 and 100,000 (USD 429, 452 and 476) to
retirees on their ninetieth, ninety-fifth and one-hundredth
birthdays, respectively. (Note: Under socialism, the state
presented one-hundred-year-olds with a congratulatory
birthday cake.) His rival Viktor Orban (FIDESZ) has promised
free medications to those over 65.


8. (U) Under MSZP's 100 Steps program, additional, piecemeal
changes have been promised by 2010, e.g., a 50-percent
increase in widows' benefits, in two steps; and selective
increases to disability pensions established since 1991.
Other changes may do a better job of minimizing the
inequalities between pensions for those who retired in
certain periods. For example, in 2007 MSZP promises to raise
pensions for those who retired prior to December 1987 (for
men by three percent, for women by five percent). In 2008,
pensions for those who retired between 1991 and 1996 would
increase by four percent, since they were represent a lower
proportion of income than pensions calculated in different
periods. Also in 2008, the same pensions would rise by 0.5
percent per year worked in excess of 29 years, up to a
maximum of ten percent. In 2009, all pensions for those who
retired between 1988 and 1990 would rise by two percent.


9. (U) In addition to phasing in a fourteenth-month pension
over four years, FIDESZ has pledged to provide those over age
60 with certain medications free of charge, such as cancer
drugs, with a small per-package copayment; grocery vouchers
for the elderly; 100-percent pensions for women who have
worked for 40 years; a ten-percent reduction in electricity
prices from July 1, 2006; a one-third price reduction in
heating costs; an annual cap on price increases for heating
gas, public-transportation costs and pharmaceuticals in line
with inflation; and a strengthened consumer-protection office.

--------------
The Pensioner Vote
--------------


10. (U) FIDESZ's promises notwithstanding, it is reasonable
to expect a plurality of retirement-age voters to support
MSZP this time, as indicated by past election results and
current polling. In 2002, older voters displayed a
preference for parties on the left, and according to an
analysis by Corvinus University political scientists, in 2002
50 percent of voters cast ballots for MSZP, 40 percent for

BUDAPEST 00000698 003 OF 003


FIDESZ and 4 percent for SZDSZ. At a March 23 pollster
roundtable, Gallup Hungary's Robert Manchin stated that while
FIDESZ leads among voters under age 45, MSZP is ahead with
the 65-plus crowd -- and the race is a dead heat among voters
between those two age groups. Also in March, the
FIDESZ-friendly Szazadveg Foundation reported that 36 percent
of all respondents believed a Gyurcsany-led government would
do more to improve the social conditions of pensioners,
against 23 percent who thought an Orban government would do
better. Although Dr. Aszodi complained to Emboffs that
successive governments have shown partisanship in funding
pensioner advocacy groups, he also insisted that such groups
needed such support to function -- and his own party
preference is clear, as he is running on a FIDESZ party list
in Baranya County. (Note: At the same time, Aszodi
partipates in the allegedly MSZP-friendly government advisory
group chaired by Mihalovits.) Yet such alleged partisanship
is unlikely to affect the way the pensioner vote splits. In
February, MSZP Party Vice President Imre Szekeres told
Embassy that he thought MSZP would do well with pensioners
this time as well, citing a reasonably-priced "food basket,"
affordable housing, low inflation, and a program that
provided 500,000 of Hungary's estimated three million
pensioners with cost-free prescription drugs as reasons to
count on pensioners' support.

--------------
Comment: Are the Pensioners a Voting Bloc?
--------------


11. (SBU) No. That said, pensioners tend to vote for the
MSZP more than for FIDESZ, and a strong turnout by retirees
could tip the balance in MSZP's favor while slightly
undercutting SZDSZ. Although each major party appeals
directly to pensioners, the pensioners themselves have shown
limited organizational mettle, perhaps impeded by rising
transportation costs and low rates of Internet use: National
advocacy groups remain divided along party lines, and the
so-called Pensioners Party is unlikely to approach, let alone
pass the five-percent threshold to entering Parliament.


12. (SBU) Many Hungarian pensioners live on meager incomes,
and their anxiety about rising costs is real. An MSZP
victory, with or without SZDSZ, may result in a somewhat more
systematic effort to fix the current system's inequities, but
the Swiss-indexation system will stay, and average pensions
will remain modest. FIDESZ's stated platform consists
entirely of palliatives. Either major party's promises, if
fulfilled, will give pensioners some relief. However, most
of this campaign's promises to pensioners come down to more
birthday cake.


13. (U) Visit U.S. Embassy Budapest's classified website:
www.state.sgov.gov/p/eur/budapest/index.cfm.
WALKER