Household or state management?
It is often heard from leaders that housewives know best how to manage money and perhaps it would be appropriate to apply the principles of households to public finances as well.
However, the differences between household and public finances are fundamental, and these differences are evident in terms of goals, scale, sources, and responsibilities. While households strive to meet their own needs, public finances should serve the well-being of a community.
The basis of household management is to create a balance between income and expenditure. Families must ensure that their income covers their expenses in the short term and, if possible, build up savings. Household incomes are generally fixed and come from wages, pensions, family allowances, or limited capital income. Households can only make limited use of external revenues through loans, given the need to maintain the necessary financial balance.
It is important to note that household and public finances are closely interrelated. The state’s economic policy affects household incomes and expenditures, while household consumption and savings affect the performance of the entire economy. The effects of the state’s economic policy are felt directly and indirectly in the lives of households. For example, a tax increase can reduce household disposable income, while a government subsidy can increase it. Public investments can create jobs, while budget cuts can lead to layoffs.
Public finance management is a much more complex task. The state should ensure the financing of public services (e.g., education, health care, defense), maintain economic stability, and reduce social inequalities. State revenues mainly come from taxes, contributions, customs duties, and fees.
Long-term planning and fiscal discipline are important in public finance management. The state must ensure that revenues and expenditures are balanced and that public debt does not become unsustainable.
However, countries have significant opportunities to increase their revenues through borrowing and other monetary instruments to support public tasks or subsidized economic operations and development. Among a state’s options, raising taxes, possibly selling state assets, issuing bonds or taking other loans, and ultimately regulating inflation can increase the economy’s revenues. These revenues burden future budgets but may only have negative effects in the medium or long term.
It is important to know that the best scenario is when the growth of public revenues is achieved through economic growth, and borrowings are invested in operating and subsequently profitable sectors.
Despite the launch of a series of significant industrial developments, the Hungarian economy has not developed sufficiently in recent years, affecting state revenues. Another problem is that due to the complex geopolitical situation, those European countries with which Hungary has active economic relations have also not developed sufficiently.
Primarily, Germany’s stalled economic development adversely affects bilateral relations. German budget planning is a complex economic issue, especially in light of the strict rules of the debt brake.
The economic effects of the debt brake include stability and sustainability, aiming to prevent excessive public debt, thereby ensuring long-term fiscal stability. This stability is crucial for maintaining investor confidence, which stimulates economic growth. The debt brake allows for countercyclical fiscal policy, meaning that governments can save during economic booms and spend more during recessions. It creates a balance between fiscal discipline and necessary investments. Germany has significant investment needs in infrastructure, digitalization, and climate protection.
At the same time, it can be stated that due to comfortable financial planning in recent years, the German economy has not been able to attract additional capital, and thus could not meet the real capital demands generated by economic changes, resulting in a lag behind its competitors in key technological sectors, especially in the most important sector of the German economy, car manufacturing, and current revenues are showing a decline.
Germany is one of the most significant economies in the European Union, so if it fails to move away from balanced budget planning in the short term and cannot attract significant free capital to meet the needs of future economic development, its economy will continue to experience low growth, which could have serious effects not only on Hungary but on the entire Eurozone.