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Online Extra: Hungary's Gen-X Finance Minister


Uniformed honor guards snap to attention and raise their swords in salute as J?nos K?ka, Hungary's Minister of Economy & Transport, strides through the domed interior of the Parliament building in Budapest. "They do that if you're a Minister," K?ka says, with a slightly embarrassed grin.

If he looks a little out of place in the ornate corridors of power, that's because K?ka is just 33, a former Internet entrepreneur who's now trying to ensure that his country remains one of the most dynamic economies in the European Union. K?ka exemplifies the generation that came of age soon after the fall of the Berlin Wall and now is moving up into the top ranks of society.

He was president of Internet provider Euroweb ISP before joining the government led by Prime Minister Ferenc Gyurcs?ny last year. Recently, sitting at a conference table in his office with a laptop and mobile phone at the ready, K?ka spoke with BusinessWeek European Regional Editor Jack Ewing about applying the lessons of business to the economy of a fast-growing young democracy. Edited excerpts of their conversation follow:

How does your experience in business affect your approach to government?

Business, industry, the Internet are about efficiency, transparency, dynamism, teamwork, modernization, openness, flexibility. These are the symbols of business. I would like to make them symbols of everyday life in public services. I define myself as a new-generation politician. This new generation has a mission -- to transform the way of thinking in politics, to approach social and political questions from another perspective than old Europe.

We need to develop faster, we need to be more flexible, we need to close the gap as soon as possible between Eastern and Western Europe. We need to be more dynamic. This is what most of the governments of Central and Eastern Europe are all about. You can find [many] entrepreneurs in the government of these countries. This is a mission. Something is happening here in Central and Eastern Europe that can be of great interest to the outside world.

How much cooperation is there between governments in the region?br>

We cooperate in certain areas such as infrastructure development. We are lagging Europe from an infrastructure point of view. But all these countries are competing very aggressively to attract new investment from the U.S. or the Far East. The situation is somewhat different from country to country. We are suffering from only 7% unemployment [vs. 16.4% in Slovakia or 17.7% in Poland].

Hungary is not going for every investment that arises. We are going for the higher-value investment.

What are some of the specific things you feel you have been able to do to increase competitiveness?

Whoever wants to do business in Hungary wants to be close to customers, not only geographically but in terms of logistics. This is why we are building highways, railways, regional airports, industrial parks, logistical parks. When you will be flying home look down from the airplane. You will see Hungary as a development area. This is the good news.

The second [factor] is the human capital, the workforce. Our people are more productive than those of neighboring countries. The third factor is the pro-market environment -- the regulatory framework, taxes, red tape. You have just one person [from the Hungarian investment agency] in front of you when you are making an investment who takes care of all the paperwork.

What remains to be done? Businesspeople still complain about bureaucracy and taxes.

We need to cut taxes. This is why we decided on a tax-reduction program for the duration of the next five years. The first step will be to decrease VAT [value-added tax] from 25% to 20% as of January 1, 2006. We are reducing the higher rate of income taxes, from 38% to 36%.

We will eliminate local taxes from the system. We will gradually decrease not only income taxes but also social contributions and other taxes.... The neighboring countries -- including Slovakia, Romania, and now Serbia -- are using flat-tax systems, and they are front-runners in the tax race. I do not want to be a front-runner, but I would like to align our tax regime with the new era of tax competition in the region.

Your Prime Minister is a Socialist [and former Communist]. How does that fit with a businessperson such as yourself?

I define myself as a libertarian. I'm not a member of any party. I have no problems with the Socialists. This coalition [of Socialists and free-market Liberals] is a very good balance between the social, distribution-driven polices and the liberal accumulation policies [smile]. There is a liberal tendency in the tax regime, [and] on the other hand, pragmatic social politicians. I think the path we are pursuing with this government is the right one for a country like Hungary.


Later, Baby
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