Hungary’s Sándor Demján Capital Program is being hailed as the country’s "largest-ever SME program"—but a closer look at the criteria reveals it’s far from inclusive. With revenue and headcount thresholds that exclude 85–90% of SMEs, this initiative primarily serves a narrow, elite segment, all while being marketed as a systemic reform. It’s a flagship program designed for the few, marketed to the many.

Chronic capital poverty has defined Hungary’s small- and medium-sized businesses (SMEs) for three decades—undercapitalized, overleveraged, and locked into a vicious cycle where growth is nearly unattainable.

Given this, a large-scale equity program isn’t just welcome—it’s long overdue.

The real question is whether the recently announced Sándor Demján Capital Program actually addresses this critical need or merely gives the illusion of reform.

The Sándor Demján Capital Program

According to the Hungarian Government, the Sándor Demján Capital Program is a flagship initiative within the broader Sándor Demján Program, aimed at accelerating growth and strengthening Hungarian SMEs. The Hungarian Chamber of Commerce and Industry (Magyar Kereskedelmi és Iparkamara) claims about the program:

“The aim of the Sándor Demján Capital Program is to encourage investments by micro, small and medium-sized enterprises, to strengthen their capital base, and thereby improve their creditworthiness. The program pays particular attention to supporting investments related to infrastructure and capacity expansion, market expansion, exports, technological development, digitalization, improvements in energy efficiency, and business development.”

It’s also touted as the largest SME capital program ever launched in Hungary.

With an initial allocation of HUF 100 billion, the program offers equity-like capital ranging from HUF 100 million to HUF 200 million to eligible SMEs. The cost of capital is set at an annual 5%, significantly below market rates.

Crucially, businesses can access the funds with a 0% equity contribution and no collateral, which improves creditworthiness and unlocks additional financing opportunities.

The program is jointly implemented by:

• The Hungarian Chamber of Commerce and Industry (MKIK)

• National Capital Holding (NTH)

• The Hungarian Development Bank (MFB)

Program Target Group

The officially communicated target group includes Hungarian micro, small, and medium-sized enterprises that meet the following criteria:

• At least two closed financial years

• An average annual revenue of at least HUF 300 million (approx. €750k)

• A minimum of two employees

• At least 50% Hungarian ownership

The funding can be used flexibly for purposes including expansion, acquisitions, digitalization, renewable energy, marketing, hiring, inventory financing, consulting, follow-on investments, and even owner-management buyouts.

A Reality Check: Beyond Political Spin

Sounds like a great initiative, right?

As of July 2025, over 55 companies have already received approval, totaling HUF 10.8 billion. The program is said to aim to support 500–600 enterprises in total. Certainly, this is great news for those 55 companies that secured support.

But what happens when political marketing meets the hard data?

According to the Hungarian Central Statistical Office (KSH), there are approximately 902,000 businesses operating in Hungary. Of these, 99% are classified as SMEs.
Interestingly, 73% of all businesses are sole proprietors or have fewer than two employees, meaning they fall outside the headcount criteria for micro-enterprises.
Roughly 22% of Hungarian businesses employ between 2 and 9 people, placing them within the official definition of micro-enterprises by headcount.

Based on an average revenue of €54,000 per employee for micro-enterprises (2–9 employees), a 9-person firm is estimated to generate approximately €486,000 in annual revenue. (Rounded to €490,000 for simplicity; assumes a constant per-head revenue across firm sizes.)

Based on these numbers, it’s clear the program is designed for a very narrow segment of SMEs:

• 4% of SMEs qualify as small enterprises (with average revenue of €101,000 per head)

• 0.6% of SMEs qualify as medium-sized enterprises (with average revenue of €163,000 per head)

While the political messaging frames the program as a broad solution for all SMEs, its eligibility criteria effectively exclude ~95% of businesses.

A very small, top-performing subset of micro-enterprises—those with higher-than-average revenue—would meet the minimum requirements. In fact, over 99% of micro-enterprises are excluded from the program by default.

In the best case, this program in reality targets the top 5% of the SME universe.

Summing Up the Numbers

Although the program is marketed as a broad initiative for SMEs, a closer look at the data reveals that it effectively excludes 95% of Hungarian SMEs.

As of the latest figures (end of July 2025), only 55 companies have been approved.
According to recent government statements, the target is to reach 500–600 companies by year-end.

When these numbers are extrapolated across the SME landscape, the true participation rate is just 0.06–0.07%.

Even when focusing only on the relevant small and medium-sized enterprises (excluding micro-enterprises), the rate barely reaches 1.2–1.4%.

This is yet another example of a program designed for the few but sold to the many—a familiar marketing (or propaganda) tool often employed by the current government.
It does not represent systemic reform, nor does it signal a genuine commitment to supporting SMEs at large. Rather, it reinforces the position of a small, already well-placed elite within the SME sector.

While the financial support may be meaningful for the selected few, the program fails to engage with the broader structural challenges faced by Hungarian SMEs—particularly the micro-enterprises that make up the overwhelming majority.

Key Takeaways: A Narrative Summary

Despite being promoted as a broad solution for Hungary’s small and medium-sized enterprises (SMEs), the program in question leaves the country’s core business segment untouched.

The real structural problems remain unaddressed.

Hungary is home to over 850,000 micro-enterprises, employing nearly 1.3 million people and indirectly supporting an estimated 2.5 to 3 million citizens. These are not fringe operators—they are the foundation of the Hungarian economy. Yet, they are persistently excluded from policy considerations, treated as marginal players in economic planning. This isn’t just poor economics. It’s bad governance.

Hungary’s economic performance has lagged behind its Central and Eastern European (CEE) peers for decades. This is not a coincidence. The country’s long-term stagnation can be traced back to the systematic neglect of micro-enterprises—the very entities that drive grassroots entrepreneurship, regional employment, and innovation.

Look across the region, and a pattern emerges: countries that invest more strategically in their SMEs are consistently outperforming Hungary on key economic indicators. These governments have recognized that SMEs are more than a policy talking point—they are a growth engine. In contrast, Hungary’s approach has placed artificial ceilings on business development, through policies that inhibit scale, reduce flexibility, and suppress competitiveness.

A perfect example of this is the recent 2025 EU VAT reform for small enterprises. The updated EU SME Special Scheme introduces two thresholds for VAT excemption:

• A domestic threshold (up to €85,000) within the country of establishment

• A cross-border threshold (€100,000), allowing small businesses to sell in other EU countries without registering separately in each jurisdiction—provided they stay under the limit and submit quarterly reports using a designated EX number

This reform opens the door for EU-resident small businesses to expand across the single market under simplified VAT conditions. However, each member state sets its own domestic threshold, and this is where Hungary’s policy choices again fall short.

While many CEE countries have adopted higher thresholds and more inclusive flat-tax regimes, Hungary maintains a threshold of just €45,000. The result? Around 80% of Hungarian micro-enterprises are excluded from leveraging the new VAT regime. This isn’t a minor technical detail—it’s a structural chokehold on the ambitions of small entrepreneurs.

Hungarian business owners are effectively punished for growing, blocked from simplified regulatory schemes that their counterparts in neighboring countries can freely access. The ecosystem is fragmented and constrained—not just by market forces, but by design.

This is not simply policy inertia. It reflects a deeper systemic problem.

When a government continuously ignores the majority to protect the privileges of a well-positioned minority, it’s not reform—it’s regression dressed up as policy.

Yes, the current program may bring tangible benefits to a select few. But for the overwhelming majority of SMEs—especially the micro-enterprises who form the backbone of the economy—it offers little more than a reminder of their ongoing exclusion.

Disagree? Good. I don’t write to be right—I write to be tested. Bring your Tenth Man view, your sharpest counterpoint, or even a quiet doubt—so long as it builds on data. The most useful critique is often the one that unsettles my own thinking.

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What if corruption in Hungary isn’t just a problem — but a survival strategy? This essay reframes corruption not as a moral failure, but as a form of adaptive resilience in response to systemic dysfunction. In a system defined by overregulation, exclusion, and rigid bureaucracy, informality becomes a rational way to get things done. Instead of cracking down harder, maybe it’s time to reform the system that makes informality necessary in the first place.

“If nine people say corruption is an unqualified evil, I will be the tenth to ask—what if it isn’t?”

Take 1: Reframing Corruption

Corruption is typically defined as the abuse of entrusted power for private gain. At all levels of society. This may occur in both public and private sectors and often involves bribery, embezzlement, fraud, nepotism, cronyism, or extortion.

Mainstream narratives portray corruption as a purely destructive force: it erodes trust, weakens institutions, distorts markets, and impedes development. This framing dominates international discourse—and for good reason.

But what if this view, while morally comforting, is analytically incomplete?

Take 2: Corruption as a Rational System Response

In my view, within Hungary’s socio-economic ecosystem, corruption functions less as a moral aberration and more as a pragmatic response to deep systemic dysfunctions.

Where legal and economic frameworks fail to deliver equitable access or opportunity, corruption fills the void. It becomes a survival mechanism—an informal workaround in a rigid system that structurally excludes large swathes of society.

Hungary is not unique in this. But unlike many Western democracies where corruption scandals topple governments and delegitimize institutions, Hungary’s elites remain remarkably resilient in the face of repeated corruption allegations.

No major political figure in Hungary has lost power because of corruption.
That fact is not an outlier—it is the system.

Take 3: The CPI is a Subjective Mirror, Not a Microscope

The Corruption Perceptions Index (CPI), published annually by Transparency International (TP), ranks countries based on perceived public sector corruption. Hungary’s steady decline in CPI rankings reflects growing concerns over judicial independence, state capture, and opaque governance.

But the CPI doesn’t measure actual corruption — it measures perceptions of it, mostly among businesspeople and experts. This raises several critical issues:

• It captures elite visibility, not grassroots lived reality.

• It judges morality, not functionality.

• It highlights the corruption of the few — driven by wealth and power accumulation.

• It overlooks the corruption of the many — driven by survival needs.

In environments where informal systems function better than formal ones, corruption may not even be perceived negatively — especially by those who rely on it to get by. This isn’t unique to Hungary; similar dynamics exist across several structurally challenged EU economies.

This helps explain why no major political figure in Hungary has lost power due to corruption.

Take 4: Economic Underperformance and Structural Rot

There appears to be a clear correlation between key economic indicators and the warning signs highlighted by the Corruption Perceptions Index (CPI). According to data published by Transparency International—drawing from the 2024 IMF, 2023 Eurostat, and their own proprietary sources:

• Hungary ranks near the bottom among EU member states in both GDP per capita and actual individual consumption.

• Romania, long regarded as an economic underperformer, has now overtaken Hungary in household consumption—88% of the EU average compared to Hungary’s 70%.

This is not merely a story of economics—it’s a story of misaligned governance, where the cost of formality has become unaffordable for most.

Take 5: Small Businesses are a Case Study in Informal Necessity

Hungarian SMEs—comprising the majority of the national economy—face a punishing environment:

• 27% VAT, the highest in the EU.

• Pre-financed monthly VAT payments, while clients delay payment for months.

• The demise of KATA, which obliterated a tax-friendly regime for micro-entrepreneurs.

• Predatory oversight, where small errors lead to massive penalties, and large players enjoy impunity.

In this environment, corruption isn’t about enrichment—it’s about survival. SMEs learn early that success depends more on connections than compliance. And thus, a parallel economy forms, operating by its own informal rules.

Take 6: The Hernando de Soto Theses

Back in the late ’90s, as a political science PhD student, I presented a hypothesis: Hungary’s post-communist transition more closely resembled the Latin American model than other models. Informal networks of former communist power structures took control of most Hungarian state assets during privatization, acquiring them for peanuts, amassing fortunes, and completing the largest transfer of wealth in the country’s history in record time.

At the time, it was dismissed in favor of idealized societal visions inspired by Rawls’s Justice as Fairness—visions that existed only on academic paper. But after decades working in both international corporations and local SMEs, gathering and analyzing market data and insights, I stand by my original view. Like many Latin American economies, Hungary relies heavily on informality to function. This is how post-communist privatization occurred—and, in many ways, it’s still how things work today. I see little evidence that German or U.S. institutional models have truly taken root.

This perspective aligns with the thesis of Hernando de Soto in his influential book The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (2000). De Soto argued that in environments where formal systems are rigid or exclusionary, informality is not a failure of governance, but a rational, adaptive response to systemic dysfunction.

De Soto introduced the concept of “dead capital” — productive assets (like small businesses, homes, or land) that remain outside formal legal frameworks because entering the system is too costly, bureaucratic, or complex. As a result, these assets cannot be used as collateral, traded, or invested productively. They are essentially locked out of the formal economy.

In such contexts, corruption and informality are not aberrations — they are features of survival, engineered by necessity. The problem lies not in the people, but in the system itself.

Take 7: Corruption as Social Resilience

In Hungary, informal exchanges, favoritism, and “gray” transactions are not always viewed with disdain—they are often the only functional pathways to get things done.

• A teacher accepts a gift not out of greed, but because wages are insufficient.

• A small contractor uses “contacts” to bypass months-long licensing delays.

• A startup bypasses official procurement because tenders are stitched up in advance.

These are not stories of villainy. They are stories of functional adaptation—a society building parallel systems where formal ones fail.

This is what we call resilience—though the term is usually reserved for more morally palatable responses.

Take 8: Policy Implications — Fight the System, Not the Symptom

Punishing corruption without addressing the structural reasons people rely on it is like treating fever without curing the infection.

To truly combat corruption in Hungary, policies must move beyond moralism. They must:

• Simplify bureaucratic procedures and reduce overregulation.

• Ensure fair access to credit, tenders, and state funds.

• Level the playing field for SMEs against politically connected giants.

• Formalize the informal, giving legal cover and support to existing productive behavior.

• Rebuild trust, not just enforce compliance.

Most importantly: corruption in Hungary is not a cultural flaw. It is a governance failure. And failures of governance are fixable.

Conclusion: A System, Not a Scandal

Hungary's persistent corruption is not a story of individual immorality, but one of systemic necessity.

The real scandal is not that people find ways around the system—but that the system demands it.

Understanding corruption as an adaptive survival strategy doesn’t excuse it. It explains it. And from explanation comes the possibility of reform—not just punitive enforcement, but transformation.

If Hungary is to move from survival to prosperity, it must stop fighting corruption as if it were merely a crime—and start dismantling the system that made it necessary.

Disagree? Good. I don’t write to be right—I write to be tested. Bring your Tenth Man view, your sharpest counterpoint, or even a quiet doubt—so long as it builds on data. The most useful critique is often the one that unsettles my own thinking.

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Hungary’s delay in adopting the euro has created a two-tier economy—rewarding political elites, large exporters, and banks, while imposing rising costs on SMEs, households, and consumers. Framed as “sovereignty,” this policy increasingly functions as a mechanism to preserve the status quo rather than foster inclusive economic growth.

Hungary’s adoption of the euro has been postponed yet again—possibly until 2030 or later, according to Prime Minister Viktor Orbán. This raises a critical question:

Is the delay a deliberate strategy that benefits select groups, or a structural drift that harms the broader economy?

Part I: The Winners — Who Gains from Delay?

To understand who truly benefits from this policy choice, we must examine the economic architecture it supports.

This debate extends beyond monetary policy.

It’s about how Hungary’s economy is structured—and for whom. A careful look reveals two distinct tracks: a narrow elite reaping gains from the delay, and a much broader majority shouldering its costs.

Let’s make an attempt to sum up first the winners of the delay:

1. Political Power Structures and the Sovereignty Narrative

By keeping the forint, Hungary retains full control over monetary policy—setting interest rates, managing inflation, and guiding the exchange rate. This autonomy is framed as patriotic, with euro adoption portrayed as a surrender of sovereignty to Brussels. Orbán uses this narrative to bolster his nationalist stance.

Government-aligned voices present a weak forint not as a liability but as a strategic tool tailored to Hungary’s economic structure. It boosts export competitiveness, protects industrial jobs, and supports tourism by attracting foreign visitors—feeding both economic goals and nationalist messaging.

EU transfers in euros go further when converted into a weaker forint, allowing more domestic spending without raising taxes or borrowing. Mild inflation from currency weakening also reduces the real value of public debt, offering a quiet alternative to austerity.

Altogether, the forint underpins a broader message of strategic autonomy. Delaying euro adoption is framed not as reluctance, but as protection of national control. Yet a deeper question lingers: is this about national sovereignty—or shielding political elites from external oversight?

2. Large Exporters

Multinational and export-oriented firms in Hungary benefit from a weak forint: they earn in euros but pay costs in devalued forints, boosting profits. These companies dominate exports, with Hungarian SMEs accounting for just 12% of the share.

Even the Hungarian National Bank (MNB) admits devaluation helps exporters—though with diminishing long-term benefits. It offers short-term competitiveness, but fuels inflation and import price rises. This reinforces the government’s broader narrative of sovereignty, now translated into corporate profitability.

For major exporters, a weaker forint makes Hungarian goods cheaper abroad without cutting wages or margins—a key advantage in price-sensitive sectors like manufacturing.

Retaining the forint serves as industrial strategy. Euro adoption would remove exchange-rate flexibility that currently acts as an informal subsidy to exporters. Despite volatility, the system favors global competitiveness.

Exporters also benefit from EU funds—paid in euros but spent in forints—which stretch further and support state incentives, infrastructure, and subsidies, often in export-driven sectors. This happens without raising corporate taxes.

There’s a quiet fiscal bonus too: controlled inflation erodes public debt, stabilizing finances while avoiding unpopular austerity—favorable conditions for business.

So while the government pitches forint sovereignty as patriotism, exporters view it as leverage. The real question: is this sound strategy, or short-term advantage sustaining a system resistant to reform?

3. Commercial Banks and Currency Traders

The chart below shows Return on Equity (RoE) by country in 2024 compared to 2023 (source: EBA). Hungarian banks report RoE figures that are double the EU average.

Hungary’s financial sector quietly benefits from its monetary sovereignty. The absence of the euro and continued use of the forint (HUF) provide key advantages:

• Independent interest rate policy, supporting higher margins

• Foreign exchange (FX) income from pricing, hedging, and transaction fees

• Inflation-driven repricing of loans

• Limited competition from eurozone-based banks

• Opportunities in currency risk management

These dynamics mean that, beyond the real economy, the financial sector is especially well-positioned to capitalize on currency flexibility and volatility. Independent interest rate control allows banks to benefit from wider spreads and policy-driven liquidity, particularly during inflationary periods.

A depreciating forint inflates the value of foreign currency–denominated assets, enhancing bank balance sheets without real economic growth. At the same time, increased currency volatility fuels demand for FX services, hedging instruments, and foreign currency loans — all of which generate revenue for banks.

Inflation also reduces the real burden of public debt, enabling ongoing government spending without austerity. This indirectly supports domestic bond markets and overall banking activity.

The central bank’s flexible approach — blending monetary and fiscal tools — enables targeted lending programs and asset purchases that favor financial institutions. These measures would be subject to tighter constraints under eurozone rules.

In summary, Hungary’s current system does not merely serve political interests — it disproportionately benefits financial actors aligned with them.

4. The Hungarian National Bank (MNB)

The Hungarian National Bank (MNB) is a major beneficiary of the government’s decision to retain the forint. It gains full policy autonomy, allowing it to set interest rates, manage inflation, and intervene in markets without EU constraints. This flexibility aligns closely with government priorities and supports a politically controlled economic narrative.

A weaker forint also benefits the MNB’s own balance sheet. Euro-denominated reserves rise in forint value, often producing accounting profits that can fund state-aligned projects through opaque channels. Meanwhile, seigniorage income and asset purchases further expand its influence — beyond traditional monetary functions.

By staying outside the eurozone, the MNB avoids direct ECB oversight and maintains its institutional independence, which increasingly translates into political utility. It becomes not just a monetary authority, but a strategic actor in Hungary’s broader state-centric economic model.

However, another key question remains unanswered: how have these gains been used? Greater transparency from the MNB is needed, especially in light of revelations surrounding the ex-President of the MNB and the missing hundreds of billion HUF.

Part II: The Losers — Who Pays the Price?

But while these actors gain, others pay a quiet and compounding price—starting with the currency itself.

5. The National Currency (HUF)

Over the past decade, the Hungarian forint has been the weakest performer among regional currencies. Based on Eurostat data using a 2015 = 100 benchmark, the forint has consistently depreciated at a faster rate than the Czech koruna, Polish zloty, Romanian leu, and Bulgarian lev. (Click on the chart to view detailed currency performance.)

This pattern cannot be explained solely by market trends. It suggests intentional depreciation, possibly to sustain the short-term gains of the groups mentioned above.

A 27% depreciation of the forint over 10 years quietly transfers wealth from wage earners, savers, and consumers to exporters, the state, and financial institutions. While it boosts short-term competitiveness and fiscal space, the long-term tradeoff may be lower real incomes, inflation risk, and institutional dependency on a weak currency regime.

6. Small and Medium-Sized Enterprises (SMEs)

Although SMEs make up 99% of Hungarian businesses and 95% are micro-enterprises, they contribute just over 12% to exports. Most operate domestically and cannot hedge against currency fluctuations (see chart Part II/1).

For these firms, the forint's volatility complicates planning, borrowing, and pricing. Unlike large exporters, they don’t benefit from the devaluation strategy. Sovereignty for the state becomes instability for the real economy.

7. Consumers and Households

Ordinary Hungarians bear the burden of inflation.

Imported inflation makes imports more expensive (e.g. energy, food, machinery, electronics, medicine). This fuels inflation, hurting consumers and reducing real wages. If combined with FX exposure, the impact on purchasing power is more significant. This reduces living standards, especially for the middle class.

Over two decades, Hungary has drifted further from the EU price stability norm. In 2004, inflation was 6.8%—already 2.7x the EU average. By 2023, it had reached 17%, still 2.6x the average, signaling persistent structural divergence. Many households have resorted to hoarding euros or comparing prices in foreign currencies to cope with volatility.

8. Long-Term Individual Investors

High inflation drives up interest rates. Hungary’s mortgage rates are among the highest in the EU, sometimes double those in eurozone countries. For households with modest incomes, reduces the share of disposable income available for saving and home ownership.

Compared to Belgium, Hungarian mortgages can be more than twice as expensive, despite much lower income levels. Is that a reward for staying out of the euro? Hardly.

9. Public Finances and Fiscal Credibility

Hungary consistently breaches the Maastricht convergence criteria:

• Fiscal deficits exceed the 3% limit

• Debt-to-GDP hovers around 74%, above the 60% threshold

These failures delay euro adoption, which in turn restricts access to EU stabilization mechanisms. The status quo encourages short-term fiscal populism over structural reform.

10. Public Trust and Sentiment

Public support for the euro remains high—above 75% according to Eurobarometer surveys. But mixed messages and endless delays have eroded confidence in the forint. Euroization of savings is a grassroots rejection of national monetary policy.

Part III: A Strategic Shift? Signs of Change

Even the MNB recently admitted the benefits of currency autonomy are diminishing. The competitiveness-through-devaluation playbook has reached its limits.

Meanwhile, the ECB’s 2024 Convergence Report ranked Hungary as one of the least prepared countries for euro entry, citing inflation, debt, fiscal deficit, and central bank independence as as ongoing challenges.

Part IV: A Path Forward for the Majority

If Hungary is serious about inclusive economic growth, euro adoption must be reframed—not as capitulation to Brussels, but as a commitment to stability, fairness, and opportunity.

Stability for SMEs and Families. Without currency stability, SMEs can’t plan or grow. Families can’t budget or invest. A timetable for joining ERM II would provide predictability and build trust.

Affordable Financing. Interest rates in Hungary must align with eurozone levels. Convergence can ease borrowing costs, fueling entrepreneurship and home ownership.

Targeted Support for SMEs. SMEs need more than macro stability. Accompany euro adoption with simplified taxation, access to euro loans, digital export tools, and procurement incentives.

Protection of Wages and Prices. Real wages are eroding. Inflation outpaces earnings. Eurozone membership offers greater price transparency and wage stability.

Conclusion: The Tenth Man Take

A government like Hungary’s gains fiscal and export advantages from a weaker forint, but at the cost of inflation, household pain, and long-term credibility. It’s often a political-economic balancing act — useful in the short term, risky in the long term.

As for why Hungary might intentionally delay euro adoption, there are some evident answers, such as:

• To stimulate exports in the short term.

• To fill budget gaps using higher forint-converted EU or export earnings.

• To delay euro adoption, maintaining monetary policy autonomy.

• To inflate away debt burdens or suppress real wages without explicit austerity.

But the real issue is that Hungary’s euro delay has created a two-speed economy. Large exporters, financial elites, and the state apparatus profit from currency autonomy. Meanwhile, SMEs, households, consumers, and everyday investors bear rising costs.

This is no longer a technical debate. It is a question of economic justice and long-term vision.

If Hungary truly wants to empower its people, it must stop treating euro adoption as a threat. It should become a central component of a transparent, inclusive national strategy.

The regional data already show the consequences of this divergence. Without reform, Hungary risks drifting another two decades—deepening inequality and sacrificing stability for the benefit of a few.

Disagree? Good. I don’t write to be right—I write to be tested. Bring your Tenth Man view, your sharpest counterpoint, or even a quiet doubt—so long as it builds on data. The most useful critique is often the one that unsettles my own thinking.

Don’t forget to subscribe for more Critical Hungary Insights!

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Hungary’s labor market still shows a trend toward low-cost employment strategies. Most job listings prioritize minimal experience and require no higher education, with only a fraction targeting senior, qualified professionals. This suggests a lack of structural focus on valuing expertise and long-term human capital—raising concerns about the country’s ability to transition toward a knowledge-based economy.

Introduction: Setting the Paradox

In today’s Hungarian labor market—shaped by cost-saving pressures, wage constraints, and short-term priorities—experienced professionals with higher education may be finding fewer opportunities than expected. This seems puzzling at first, especially when dominant narratives repeatedly emphasize labor shortages.

Yet, when we examine actual job listings and hiring patterns, a contradiction emerges. If labor is in such short supply, why are skilled professionals overlooked? If talent is needed, why are experienced candidates treated as unaffordable? Are they erased form the listings?

This essay explores that paradox.

Drawing on a snapshot from one major Hungarian job platform—while not fully representative, still revealing—it suggests that the issue lies not in ideological bias, but in deeper structural choices. These patterns point to a labor market built on low value-added models and rigid cost containment, where experience and qualifications are not just undervalued—but seen as unaffordable.

Literary Echoes: No Country for “Old” Minds

Taking inspiration from W. B. Yeats’s line no country for old men, this piece asks: in an economy that prioritizes cheap labor over deep knowledge, is there still room for experience, expertise, and “unageing intellect”?

Yeats’s famous verse from Sailing to Byzantium paints a vivid contrast between youthful immediacy and the neglected wisdom of age:

“Caught in that sensual music all neglect / Monuments of unageing intellect.”

This lament over the marginalization of knowledge and experience is echoed a century later in Cormac McCarthy’s No Country for Old Men, adapted by the Coen brothers. Sheriff Ed Tom Bell, bewildered by the moral disarray of the modern world, struggles to find his place in a system he no longer understands.

What the Data Tells Us

To explore the above question, a basic descriptive analysis was conducted using publicly available job listing data from profession.hu, Hungary’s market-leading job portal.1

According to the site, 55% of suitable candidates apply through the platform. It receives the highest thematic job traffic in Hungary and had over 1.4 million registered users by Q2 2024.

The platform typically hosts 10,000–15,000 active job listings at any given time—a significant enough dataset to draw directional insights.

A quick breakdown by education level reveals:

76% of job listings do not require higher education.

Only 24% explicitly request a college or university degree.

Breaking the data down by experience level:

72% of listings require less than 3 years of experience.

Only 0.4% of postings seek candidates with 10+ years of experience.

In comparison—and to underscore just how strikingly low the demand for experienced professionals is—assuming a roughly 10,000-sized random sample, the margin of error at a 90% confidence level is approximately ±0.82%. Yet, if we take the full set of job listings on Profession.hu as our sample and focus only on those requiring 10+ years of experience, they account for just 0.4% of all listings—well below the margin of error itself. This is not just statistically negligible; it’s an alarming signal about the structural priorities of the labor market.

Cross-tabulating both filters (higher education and 10+ years of experience) yields just 27 listings in total—or less than 0.3% of all postings

No Country for Experienced Professionals?

This data raises pressing questions:

• Is this simply a feature of profession.hu’s user base and listing profile?

• Is it influenced by tax policies, such as the under-25s income tax exemption, pushing employers toward younger hires?

• Or is it a sign of a structurally imbalanced labor market, skewed toward low-cost, low-complexity jobs with limited space for knowledge-based roles?

“Whatever is begotten, born, and dies… Caught in that sensual music all neglect / Monuments of unageing intellect.” —W. B. Yeats

In this context, the well-educated professional with a decade or more of experience begins to resemble Yeats’s "old man"—not necessarily aged, but sidelined. Not because their skills are obsolete, but because they are seen as expensive, incompatible with short-term cost logic.

The Narrative Gap

Some of the HR narratives from mainstream media continue to sound the alarm about labor shortages. Statements like "Many industries are experiencing a labor shortage" or Jooble’s “Sectors Facing the Most Severe Labor Shortages in 2025” are common.

In Profession.hu’s, an HR survey dedicated to the job market, "HR Körkép 2024 Q2" report, employers cite their top three recruitment challenges as:

1. Poor candidate quality

2. High salary expectations

3. Low applicant numbers

But when compared with the actual content of job listings, a clear paradox emerges.

Companies report that they cannot find applicants—yet job ads overwhelmingly avoid targeting experienced professionals. High salary expectations are cited as a barrier—but little evidence shows a willingness to invest in long-term human capital. And the low applicant number claims, seem to support the labor shortage narrative

To translate these employer concerns into plain terms: there is a shortage of low-experience, less-educated, and inexpensive labor—precisely the segment most employers are targeting.

Is this the companies’ fault? Not entirely.

It’s the symptom of a dysfunctional system—one that over-relies on low value-added labor, caters to cost-focused investors, and keeps wages artificially low to maintain a “competitiveness gap” with regional peers.

Yeats, Sheriff Bell, and the Hungarian Job Market

Since the early 1990s, successive Hungarian governments have pursued a strategy focused on attracting foreign capital—often at considerable cost. This has included the privatization of national assets, generous subsidies for foreign investors (ranging from 15 to 30 million HUF per job), and the construction of an economy heavily reliant on manufacturing.

Critics have long described this model as an “assembly-line economy,” while officials counter with claims that Hungary is becoming a hub for “high-tech industry”

The outcome?

Official statistics do show an increase in R&D jobs. However, due to the underlying manufacturing logic, the majority of newly created positions are blue-collar, low experience and low-wage.

This is further evidenced by indirect government communication about jobs that the domestic workforce is increasingly unwilling or unable to fill—particularly those that are physically demanding or low-paid. In response, Hungary has increasingly turned to guest workers, with conflicting estimates ranging from 100,000 to several hundred thousand brought in from distant countries to keep production lines running.

The job market data supports the critics' view of an 'assembly line economy' more than the official narrative of a 'high-tech industry', since based on the local job supply, the need to underpaid, lower educated workforce seemingly is higher, while the need to skilled, educated and experienced workforce seems very small.

If the economy would be indeed a high tech one, that would be reflected in wages and labor costs too. However, this is not reflected in actual wage and labor cost data neither.

Another great indicator is to check the Eurostat market data on industry, construction and services hourly wages (by excluding the public administration, defense, compulsory social security wages which are state controlled) and benchmark this toward the European Union 27 (EU27) market average hourly wages.

In a regional context, when compared with 11 other Central and Eastern European markets (Bulgaria, Czechia, Estonia, Croatia, Latvia, Lithuania, Poland, Romania, Slovenia, and Slovakia), Hungary shows no indication of catching up with the EU average hourly wage trend over the 2008–2024 period. In contrast, since 2016, both Slovenia and Lithuania are consistently closing the gap, while since 2022, Croatia and Poland are showning similar tendencies. The remaining countries do not display such convergence.

According to the data, in 2008, Hungary’s average hourly wage lagged the EU27 average by €10.1. By 2012, the gap had widened to €12.5, and as of 2024, it stands at €13.1. Since 2012, the gap has fluctuated within a narrow range of €13.0–€13.7. Hungary currently has the third-largest wage gap relative to the EU27 average, with only Romania and Latvia showing only slightly larger discrepancies. Was thjs stagnation most likely a strategic decision aimed at maintaining cost competitiveness within the region or not? )see Appendix, Chart 1).

Last but not least, Hungary ranks second-lowest in the EU for minimum wages, just above Bulgaria. (see Appendix, Chart 2). This is another supporting argument to the low cost direction.

One might ask: has anything really changed in the last hundred years for "old minds"? The Hungarian white-collar job market suggests perhaps not—or is it pointing to something else entirely?

Contrarian Conclusion: Patterns, Not Absolutes

The data presented here offers only a snapshot and does not capture the full complexity of Hungary’s labor dynamics. But it does reveal structural patterns worth questioning.

The striking underrepresentation of experienced, highly educated professionals in job listings may not stem from active exclusion—but from economic forces: cost-efficiency, industrial bias, tax incentives, and labor market models built for volume, not value.

This is not a moral failure—it is a systemic one.

Still, the consequences are stark. A labor market that undervalues those with the ability to lead, train, and innovate—those who know not just how to operate within the system, but how to improve it—is not positioning itself for long-term resilience.

Final Reflection: No Country for Old “Minds”

Yeats’s lament over the neglect of “monuments of unageing intellect” feels eerily relevant today. Hungary’s labor market model—built on short-term cost control rather than knowledge creation—is becoming, in effect, no country for old “minds.”

With over 90% of jobs requiring less than five years of experience and 71% requiring no higher education, the data points unmistakably to a low value-added economic model—an 'assembly-line economy,' as some critics describe it.

It may serve immediate investor interests. But in doing so, it risks wasting one of Hungary’s most valuable and underused assets: experienced, educated professionals with the insight to create lasting value.

The question remains—not as rhetoric, but as an urgent policy challenge:

Is there still a place in this economy for those who know the system—not just how to work within it, but how to improve it?

A recalibration is needed—not just to absorb experience, but to leverage it in shaping a smarter, more sustainable labor model.

Appendix:

Chart 1: Hourly Wages Gap versus European Union 2008-2024 (source: Eurostat).

Chart 2: Comparison of Minimum Wages in European Union 2025 S1 (source: Eurostat).

Disagree? Good. I don’t write to be right—I write to be tested. Bring your Tenth Man view, your sharpest counterpoint, or even a quiet doubt—so long as it builds on data. The most useful critique is often the one that unsettles my own thinking.

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Microenterprises are the backbone of Hungary’s economy, yet current tax and regulatory structures make it nearly impossible for them to survive—let alone grow. This essay focuses on retail microbusinesses to illustrate how systemic design, not individual inefficiency, is at the root of underperformance. It calls for a fairer, scalable approach to taxation, support, and policy—before an entire sector is pushed beyond recovery.

Let’s consider a critical question:

Has any politician, policymaker, regulator, or government economist in Hungary ever calculated how much net revenue per employee a microenterprise—or a solo entrepreneur—actually needs to survive, let alone thrive—in today’s economy, within a specific sector?

The likely answer is yes—but if such analysis exists, it’s not being shared.

Hungary’s business environment has some standout features. The 9% corporate tax rate—the lowest in the EU—is attractive on paper. But let’s be honest: that mostly benefits companies already generating significant profits—most of which are large. What about the rest?

According to 2023 data from the Hungarian Central Statistical Office (KSH), there were over 900,000 businesses in Hungary. More than 99% fall into the SME category, and nearly 95% are classified as micro-sized. SMEs employ over 2.1 million people—nearly double the employment base of larger firms. (See SME Indicators table below.)

Micro-enterprises in Hungary employ more people than all other company categories combined. Indirectly, total SMEs support the livelihoods of an estimated 4.5 to 5 million citizens, based on an average household size of 2.3 persons. This underscores the critical importance of the sector—not only economically, but socially.

Despite this, the sector has been consistently under-prioritized by policymakers since the fall of communism. A more strategic, long-term focus on SME development is urgently needed to unlock its full potential and ensure inclusive economic growth.

Is it SME Incompetence—or Systemic Sabotage?

For over three decades, Hungarian SMEs—especially microbusinesses often run by just one or two people—have operated under increasingly hostile conditions.

Lack of access to capital, high interest rates, chronic inflation, weak consumer purchasing power, dominance of large players, aggressive price competition, overregulation, unfair competition, arbitrary policymaking, and perhaps most critically, a persistent absence of meaningful government support—these are just a few of the barriers they face.

Yet many political and economic leaders, regardless of party affiliation, continue to blame SMEs for “underperformance” or “inefficiency.”

But perhaps we’re asking the wrong question.

Rather than faulting SMEs, shouldn't we be interrogating the system itself?

• Is the economic structure inherently biased in favor of large players—and has it been since the early 1990s?

• Are SMEs underperforming due to mismanagement—or is the system designed for them to fail?

• Does responsible leadership truly want a thriving SME sector—or merely tolerate it?

These questions are complex, legitimate, and deserve serious examination.

But this post won’t try to answer them all. Instead, it will focus on something more specific, measurable, and concrete:

A closer look at a few systemic barriers SMEs face every day—illustrating just how much the deck is stacked against them.

Microenterprises in Retail: A Case Study in Structural Disadvantage

To explore the deeper systemic question, this essay narrows its focus to a specific scenario: microenterprises operating in the retail sector. There are several reasons for this choice.

Retail micro-businesses—often family-run shops with just one or two employees—offer a highly visible, measurable, and relatable example of how structural barriers impact SMEs in real life. When left to compete under unfair conditions, they illustrate better than most just how the system sets them up to fail.

Across Western Europe, small retailers are adapting to a rapidly changing environment. A digital presence is essential, not optional. Consumers increasingly demand sustainable products, fair practices, and seamless shopping experiences—whether online, on mobile, or in-store. Price competition is fierce, and widespread labor shortages push businesses to adopt new technologies quickly. Amid these pressures, a bright spot emerges: a growing consumer preference for supporting local and independent shops.

In Hungary, the situation is far more precarious. High inflation sharply cuts into consumer spending, pushing shoppers toward discount chains and away from local stores. Many micro-retailers lack the resources to digitalize or upgrade their operations. Labor shortages, especially in rural areas, and regulatory unpredictability add further stress. Unlike their Western counterparts, Hungarian small businesses aren’t just adapting—they’re struggling to survive in a system that often feels rigged against them. It’s no surprise that the Hungarian online retail market is largely dominated by foreign companies.

Meanwhile, market concentration continues to increase, driven by the aggressive expansion of international giants across nearly all retail segments. Consumers are growing more price-sensitive, forcing micro-retailers into a race-to-the-bottom on prices—one they are structurally ill-equipped to win.

The Core Question

With all this in mind, it’s worth asking:

What level of annual net revenue per employee must a Hungarian retail microenterprise generate just to break even—before any sustainable profit can even be considered?

This isn’t just an economic calculation—it’s a litmus test for whether the system is viable at all for small players.

Let’s explore that next.

The Preferential Tax Scheme Neglects Most SMEs

Hungary’s SME tax regime is uncompetitive in two key ways.

First, while many EU countries offer VAT exemptions below certain revenue thresholds—usually paired with simplified compliance—Hungary ranks among the least generous in the region. The EU allows thresholds up to €85,000. Hungary’s threshold is just €45,000. (See comparative data here)

Second, Hungary couples this low threshold with an extremely restrictive flat-tax scheme: KATA (Itemized Tax for Small Taxpayers).

Unlike regional peers whose tax schemes include freelancers, part-timers and side-hustlers, Hungary’s KATA— especially after the 2022 reform— applies only to full-time sole proprietors serving private individuals. No corporate clients, no side income, no scaling opportunities.

Before the reform, more than half of SMEs used KATA. Now, only about 20% remained eligible. Over 80% has been excluded from this simplified, affordable tax option.

In contrast, countries like Czechia offer higher thresholds and more flexible schemes support a wider range of small entrepreneurs. In Hungary, entrepreneurs quickly hit hard limits with no viable alternatives.

Most must either:

Enter the full VAT regime, designed for large enterprises; or

Opt into the “preferential” Flat Rate Tax (átalányadózás), a more complex and less forgiving fallback after KATA.

But even beyond tax policy, an even bigger challenge awaits: the sheer scale of revenue micro-entrepreneurs must generate just to survive.

Standard Playbook: A Price That Only Giants Can Afford

A real-world Hungarian retail microbusiness was modeled using conservative assumptions: minimal marketing spend, modest rent, and limited outsourcing. (See Appendix, Section 1: Assumptions & Inputs)

To remain viable long-term—under the standard tax regime and with a sustainable net profit margin—a retail microenterprise must generate 87 million HUF annually. This is well above the typical revenue levels for most Hungarian SMEs.

For a two-person retail operation (an "Entrepreneur Duo"), the break-even point rises to over 119 million HUF. This level of performance is required just to survive—not thrive—and demands efficiency benchmarks closer to those of mid-sized enterprises. (See Appendix, Section 2)

And these figures still exclude major realities:

The initial investment needed to start the business, the build-up period before reaching full operational capacity, and the cash flow strain typical in early years. Factoring those in would raise the threshold even higher, putting sustainable survival firmly out of reach for most microenterprises—unless they operate at a scale only large firms can realistically afford.

Preferential Playbook: The Myth of Fair Competition

Even under the Flat Rate Tax model—often presented as the “supportive” alternative for micro-businesses—the numbers simply don’t add up.

Using the 90% expense deduction scheme, a sole retail entrepreneur is left with just €400/month in net profit—after costs, but before reinvestment, reserves, or savings. (Modeled using Billingo’s official calculator, assuming no family tax benefits.)

For context, the average net wage in Hungary is around €1,200/month. This model delivers only one-third of that, making it barely sufficient for survival—let alone reinvestment, digitalization, or growth. (See Appendix, Section 3)

Of course, real-world scenarios vary. Some micro-retailers operate in premium locations, sell higher-margin products, or leverage strong marketing strategies. But this analysis isn't meant to represent a single "ideal" business case.

Its goal is to highlight something deeper: the structural rules of the game—and how even the so-called preferential schemes leave most microenterprises operating at or even below subsistence level.

A Tilted Playing Field

At times, it feels as though the system is deliberately designed to let micro-entrepreneurs scrape by—but never truly get ahead. Bureaucratic burdens have grown, while their room to maneuver has steadily narrowed. It’s a kind of controlled austerity—not driven by economic necessity, but embedded by design.

The message is subtle but unmistakable: “Don’t even try.”

Let’s be honest—under rules like these, this isn’t a free market. It’s a rigged game.

Small businesses are expected to shoulder tax burdens comparable to those of large corporations, without access to scale, bulk purchasing power, or structural safety nets. They’re told to compete on “equal terms” while operating under decidedly unequal conditions—especially compared to their peers in other parts of Europe.

Some may argue: “Then don’t run that kind of business.”

But is that the right question?

Should the freedom to run a modest, honest business come with structural penalties? Should surviving as an independent shopkeeper really require matching the operational efficiency of Coca-Cola?

What a Fair System Would Do

If Hungary genuinely values SME productivity, competitiveness, and innovation, then the system must reflect that priority in practice—not just in rhetoric.

A fair and functional system would:

• Stop penalizing small businesses with disproportionate costs, compliance burdens, and structural disadvantages.

• Introduce scalable, flexible tax models that evolve with a business’s size and stage—not trap them in survival mode.

• Tailor regulations to firm size, recognizing that a one-size-fits-all approach disproportionately harms microenterprises.

• Provide continuous, rather than ad-hoc, targeted government support programs—such as accessible financing, training, and advisory services—to help micro and small enterprises overcome barriers to growth.

• Acknowledge that competitiveness isn’t just about effort—it depends on the environment: access to capital, fair taxation, predictable policy, and room to grow.

Fairness doesn't mean protectionism. It means removing structural bias so that small businesses have a real chance—not just to exist, but to succeed.

The System Must Be Fixed

Only recently—after more than 30 years—has a Hungarian government introduced a targeted stimulus program for SMEs: the Demján Sándor Program.

The Demján Sándor Capital Program is officially communicated as the most significant SME capital program ever launched in Hungary. Its target group is defined as Hungarian micro, small, and medium-sized enterprises with at least two closed financial years, average annual revenue of at least HUF 300 million (≈ €750k), a minimum of two employees, and ≥ 50% Hungarian ownership.

However, a closer look at the eligibility criteria reveals how narrow the real target audience is:

• Microenterprises (73% of all SMEs) are excluded by default, since most operate with 0–1 employee.

• Among microenterprises with 2–9 employees, the vast majority are also filtered out, as their revenues might not reach the revenue threshold. The average revenue per employee in this segment is around €55k.

• In a maximum scenario this leaves only the top-performing 10% of SMEs—primarily larger small firms and medium-sized enterprises—as realistically eligible.

The program therefore cannot be considered systemic reform; it strengthens only the upper tier of SMEs that are already more competitive. While welcome for those few who qualify, it does little to address the structural weaknesses of Hungary’s broader SME sector, especially microenterprises that make up the overwhelming majority.

The core structural problems remain untouched.

That’s not a policy oversight—it’s systemic inertia.

Over 850,000 micro-enterprises employ almost 1.3 million people in Hungary, indirectly supporting an estimated 2.5 to 3 million citizens. To limit their potential—and then ignore them in policymaking—isn’t just poor economics. It’s a betrayal of fairness.

But it doesn’t have to stay this way.

Hungary’s economic future won’t be built by multinationals alone. It will be shaped by the resilience and talent of everyday Hungarian entrepreneurs—if the system finally gives them a fair shot.

APPENDIX

Section 1: Assumptions & Inputs Used

To better understand what it takes to be competitive in the standard playbook, the below disaster check exercise is modeling a one- and a two-person micro-business involved in standard taxation scheme by the following general assumptions:

• A modest brick-and-mortar retail store in Budapest (30–35 sqm, non-central).

• A bilingual e-commerce shop (Hungarian + English) with up to 25,000 SKUs.

• All goods sourced from EU wholesalers

• Outdoor products and sporting category

• Product average retail net margin 30% (overestimated vs. average)

• Most of the costs underestimated artificially.

• Artificially low marketing costs.

• No contingency funds calculated.

• The disaster check accounts only for the actual break-even year.

• The aim of outcomes only directional.

• The break-even year only one-off scenario (no time needed period included)

Below is a cost-structure with net cost estimates breakdown used for input with all related assumptions, for the above break-even scenarios:

1. REVENUE & SALES FORECASTING ASSUMPTIONS

For estimating the sales revenue needed for break-even for such a micro SME, the following assumptions are used:

• Products: B2C physical and digital commerce

• Average gross margin: 30%

• Online payments: 57% of sales

• Average e-commerce shipping cost to customers: HUF 2,000/parcel.

• Number of parcels adjusted to revenue scenario.

2. COST OF GOODS SOLD (COGS)

• Inventory: 30% average retail margin used.

• Shipping (incoming shipment costs): HUF 600,000/year.

• Packaging (cost of packaging): HUF 360,000/year.

• Warehouse: Not applicable.

3. OPERATING EXPENSES

These are expenses required to run the business day-to-day, with costs in Hungarian forint (HUF). At the time of this analysis the FX rates are cc. 400 HUF/EUR.

A. Retail Expenses (for physical store)

• Rent: HUF 3,600,000/year.

• Utilities: HUF 600,000/year.

• Insurance: HUF 180,000/year.

• Maintenance: HUF 360,000/year.

• POS system: Includes calculated yearly total POS operating cost.

Note: The POS (Point-of-Sale) system costs include electronic cashier hardware, thermal paper supplies, monthly software or service usage fees, and the annual mandatory supervisory inspection fee. Online payment processing costs are calculated separately and not included in this estimate.

B. E-commerce Expenses

• Hosting/Domain: HUF 312,000/year.

• Platform (Shoprenter Gold): HUF 400,000/year.

• Payment processing: 1.5% on 57% of revenues.

• Product photography: HUF 25,000/year (20 stock photos).

• Shipping OPEX: HUF 500,000/year.

C. Marketing & Advertising

• Online Ads: HUF 1,800,000/year.

• SEO tools: HUF 480,000/year.

• Email Marketing: HUF 96,000/year.

Note: These are minimized figures, well below best-practice levels of 12–20% of annual revenue. Artificially excluded to lower the break-even point.

D. Labor Costs

• Scenario 1: Solo Entrepreneur (1 employee)

• Scenario 2: Small Team (2 employees)

• Gross Salary per Employee: HUF 8,017,200/year.

• Total Labor Costs per Employee: HUF 9,300,000/year.

• Freelancers Activity: minimal outsourcing for graphics and social media.

• Freelancers Costs: HUF 120,000/year.

4. FIXED COSTS

• Software (invoicing only): HUF 120,000/year.

• Accounting: HUF 600,000/year.

• Legal retainer: HUF 60,000/year.

• Licenses/Permits: Not included.

5. VARIABLE COSTS

• Shipping 1 employee (customer orders): HUF 4,900,000/year.

• Shipping 2 employee (customer orders): HUF 5,650,000/year.

• POS Payment Processing: 1.5% on 12.5% of total revenue (assumes 25% in-store sales, 50% paid by card).

6. EMERGENCY FUND & CONTINGENCY

• Recommended: 10–15% of revenue.

• Modelled: not included in the model to improve outcome

7. TAXES

Corporate tax rate is a flat rate of 9% on taxable profit. The Local Business Tax (IPA) is not based on net profit, but on a modified gross revenue or turnover based maximum 2% tax.

Section 2: Standard Playbook Output

Section 3: Preferential Playbook Output

Disagree? Good. I don’t write to be right—I write to be tested. Bring your “Tenth Man” view, your sharpest counterpoint, or even a quiet doubt. Sometimes the most useful critique is the one that unsettles my own thinking.

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Inflation is typically viewed as a crisis that governments seek to combat. Yet, evidence suggests that many governments may quietly benefit from inflationary environments through increased fiscal revenues and altered economic dynamics. This analysis uses Hungary’s experience from 2020 to 2023 as a case study to explore how inflation can serve as a covert fiscal tool. By examining tax structures, wage policies, and revenue data, this report challenges conventional political narratives and highlights how inflation can advantage state finances—often at the expense of households and small businesses. The findings prompt a critical reconsideration of inflation’s political economy and raise important questions about the incentives shaping government responses across the globe.

I’ve always been drawn to frameworks that challenge conventional wisdom — especially when the stakes are high and the stories seem too simple.

Roughly a decade ago, I watched World War Z, and one scene has stuck with me ever since. A former intelligence officer explains the “Tenth Man Rule”:

If nine of us agree on an analysis, it’s the tenth man’s job to disagree — no matter how improbable it seems.

The job of the tenth man isn’t to be contrarian for its own sake — it’s to protect against dangerous groupthink. It forces decision-makers to ask: What are we missing?

Lately, I’ve been applying this lens to Hungary’s economic story — particularly its battle with inflation between 2020 and 2023.

And the more I looked, the more one question kept surfacing:

What if the Hungarian government wasn’t just fighting inflation — but quietly benefiting from it?

Hungary’s Inflation: The Official Narrative

Between 2020 and 2023, Hungary recorded the highest cumulative inflation in the European Union. While many rightly pointed to external shocks — the COVID-19 pandemic, the war in Ukraine, soaring energy prices, disrupted global supply chains, and corporate profiteering — the Hungarian government positioned itself as the people's defender. It railed against “war inflation,” imposed price caps, penalized retailers, and expanded welfare protections. But much of this came too late or there were only partial measures, leaving households and small businesses to shoulder the real cost

The numbers from this period tell a clear story:

Hungary experienced roughly 41% cumulative inflation between 2020 and 2023 — the highest in the entire European Union — compared to around 17% in the Eurozone.

That gap isn’t just statistically significant — it’s politically revealing.

But what if that isn’t the full picture?

What if, in this inflationary drama, the state wasn’t merely a victim or a savior?

What if it had something more to gain?

What if the Hungarian government, far from being caught off guard, became a quiet beneficiary of inflation—perhaps even its hidden shareholder?

A Contrarian Angle: What If the State Gained from Inflation?

Inflation is typically seen as harmful to governments — rising costs, angry voters, political risk. But what if, in Hungary’s case, inflation turned out to be… convenient?

Let’s apply the “Tenth Man” rule and consider a different perspective: Inflation as fiscal strategy — or at least, as a side effect too beneficial to stop.

Here’s what stands out:

• World-record VAT levels (27%): This consumption tax scales with prices — so when inflation rises, VAT revenues rise even if people buy less (till a certain extent).

• Flat income tax + rising nominal wages: As wages increase (even just nominally), income tax receipts swell.

• No bracket indexation: People pay more in real taxes, even if their purchasing power shrinks.

• Currency weakening: Ostensibly to help exporters, but it also inflates import prices and boosts nominal GDP.

• Targeted wage hikes: These were not broad-based wage increases, but targeted hikes — primarily designed to raise minimum contribution thresholds and sustain payroll tax revenues.

If inflation were merely a crisis, these might be unfortunate side effects. But if you follow the incentives, they start to look like features — not bugs.

Inflation’s Winners: Households and SMEs Weren’t Among Them

Let’s look at official KSH (the Hungarian Central Statistics Office) data on revenue growth by enterprise size, overall and food inflation, between 2020–2023. Then as a benchmark, let’s compare it with state treasury tax revenues. Hungary’s tax model leans heavily on indirect, consumption-based taxation—especially VAT, which is inherently inflation-sensitive.

By checking the above data, the following patterns are emerging:

• Large enterprises: +74% nominal revenue → ~34% real increase

• Hungarian state: +51% total tax/social contribution revenue

• VAT revenues alone: +50%

• Food-sector companies: most benefited from 65%+ food inflation

Meanwhile:

• Gross wages: Up ~42% — barely keeping up with inflation

• Real inflation adjusted wages: Up just 0.42% net

• Micro enterprises (SMEs): Below-inflation revenue growth = real decline

• SME sector: Grew less than state tax revenue

In short: the state and large corporations came out ahead. Households and small businesses fell behind.

And if the government truly believed inflation was an emergency — wouldn’t we expect policy responses that reduced its own gains?

Based on the numbers, the so-called “nanny state” that many citizens demand appeared more paternalistic toward itself than toward the public.

Inflation as a Quiet Fiscal Tool?

This pattern reminded me of the tobacco industry playbook:

If you can’t grow demand, raise prices. Even if fewer people buy, revenue stays up. Assuming it that you have some kind of control on slowing consumption decline.

Inflation, like excise taxes, can act as a silent extraction tool — a way to raise public funds without ever announcing a tax hike.

And it may even bend the rules of the Laffer Curve — the classic economic model that shows the trade-off between tax rates and state revenue.

Normally:
Tax too low → underfund the state
Tax too high → choke economic activity

But with inflation:

• VAT revenues grow without raising rates

• Income tax intake rises via nominal wages

• Real tax burden rises — quietly

No parliament debate. No street protests. Just... quietly swelling government revenue.

But Every Game Has a Cost

Of course, this strategy — if it was a strategy — isn’t sustainable. Inflation may deliver revenue, but it also carries risks:

• Eroding real wages and savings

• Rising debt service costs

• Declining household consumption (among the lowest per capita in the EU)

• Damaged trust in institutions

• Widening inequality

• Political volatility

If this is fiscal strategy, it’s balancing on a knife’s edge.

Stakeholder, Shareholder… or Both?

What role does the Hungarian state play here?

• As a stakeholder, it’s supposed to guard stability, protect citizens, and fight inflation.

• As a shareholder, it benefits from inflated revenues, eroded real debt, and currency conditions that help exporters.

The truth may lie somewhere in the middle.

But the tilt — at least over the last four years — seems to lean more toward quiet shareholder than outspoken protector.

And this is exactly why contrarian thinking matters.

It’s not about conspiracy — it’s about asking the question consensus forgets:

Who actually benefits from the status quo?

Final Thought: Follow the Incentives

Inflation isn’t just an economic side effect. Sometimes, it’s a political and fiscal tool.

For SMEs and households: a slow, invisible squeeze.
For governments: a golden goose that doesn’t squawk.

So next time a minister blames “war inflation” or “global markets,” channel your inner Tenth Man.

When everyone agrees on the cause — stop and ask:
Who gains if this continues?

Disagree? Good. I don’t write to be right—I write to be tested. Bring your Tenth Man view, your sharpest counterpoint, or even a quiet doubt—so long as it builds on data & insights. The most useful critique is often the one that unsettles my own thinking.

Don’t forget to subscribe for more Critical Hungary Insights!

Subscribe now

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