Analysis-Orban's giveaways still not turning election tide in Hungary

By Gergely Szakacs and Krisztina Fenyo

BUDAPEST, Dec 22 (Reuters) - Hungary's Viktor Orban may have got a brief poll boost last month from a costly pensions sweetener but he faces a race against time before April's election to turn the stagnating economy around enough to extend a 15-year grip on power.

Orban's reelection bid will be watched far beyond Hungary. A thorn in the side of the European Union, the nationalist leader counts U.S. President Donald Trump as an anti-EU ally and maintains close ties with Russia's Vladimir Putin.

Yet the domestic economy is not on his side. Income tax rebates he pushed through ahead of the 2022 election helped fuel Europe's worst inflationary surge - one which left scars.

An autumn Eurobarometer survey showed that rising costs of living topped Hungarians' domestic concerns - despite inflation retreating from highs above 25% in early 2023 to the central bank's 2-4% tolerance band in November.

STAGNATING HUNGARY UNDERPERFORMS CENTRAL EUROPEAN NEIGHBOURS

While the inflation surge has lifted Hungarian food prices close to EU average levels, the annual average full-time salary per employee was third-lowest in the bloc and pension spending is also among the lowest as a share of output.

The pension top-up, aimed at Hungary's 2.4 million retirees who make up over a quarter of the electorate, will cost $454 million next year, with its price tag rising each following year as it is phased in over the next government cycle.

It gave Orban's Fidesz a boost among older voters last month in a survey by the 21 Research Centre. Fidesz's poll rating rose by one point to 27% of all voters before retreating to 26% in December, when support for Tisza rose by three points to 34%.

David Szollosi, 83, who earns what he called an above-average pension, said the top-up could help Orban win some pensioner votes but would not be a game-changer for livelihoods.

"Such measures help people's positive attitude," said the great-grandfather. "But we are facing rather uncertain years ahead."

Erzsebet Botlik, who used to work as a cashier and cleaner, welcomed the top-up to be paid in February. She said she planned to vote for Fidesz, due to pensions and Orban's hard line on immigration - but did not feel particularly well off.

"I would barely have anything if not for my two (adult) children," Botlik, who was queuing for food donations at a charity, said of their financial help to her.

SPENDING MOVES VERY HARD TO REVERSE FOR WHOEVER WINS

Orban's pre-election moves also bear the hallmarks of similar pledges by mainstream parties elsewhere in central Europe, which can help win votes, but are very difficult to reverse politically for whoever ends up being elected.

Fitch Ratings cut Hungary's outlook to negative on Orban's pre-election spending moves. It said further measures cannot be ruled out ahead of the vote, with most polls showing Orban's Fidesz trailing opposition rival Tisza by a wide margin.

While paying some near-term dividends, the pension moves will have a far larger cost in the long run. In August the IMF warned that, without reforms to its pension system, Hungary was set for "explosive growth" in borrowing beyond 2030, with its public debt estimated at a staggering 255% of output by 2054.

Some public comments to Orban's Facebook post announcing the pension top-up were critical of the move, calling instead for hikes to smaller pensions or indexation to wages, while others derided it as a "joke" or "vote buying".

While the European Commission's monthly consumer survey was off its summer lows in November, the Hungarian index stayed far below levels in nearby Poland and the Czech Republic, whose economies have outpaced that of Hungary over the past year.

Hungary's central bank now expects inflation to temporarily dip below its 3% target in the first quarter, which could open the door to a rate cut just before the election likely in April -- but all of that might come too late for Orban.

"The problem is that (sentiment) is still negative and it cannot be changed dramatically in a few months. The time is too short and the amount of money to be distributed is limited," 21 Research Centre Director Daniel Rona said.

($1 = 330.09 forints)

(Reporting by Gergely Szakacs and Krisztina Fenyo; Editing by Mark John and Toby Chopra)