Hungarian Budget Situation Has Not Improved
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The EU money sent for teachers’ salary increases saved the May deficit, but it is still higher than the amount allowed for the entire year, writes Népszava.
The deficit reduction is not helped by the recent ruling of the European Court of Justice, which stated that Hungary’s refugee regulations violate EU law, and therefore the court imposed a lump-sum fine of 200 million euros, which increases by 400 million forints per day until the government aligns Hungarian refugee law with EU law.
VAT revenues jumped in May, which could even be the result of household consumption.
In May, a surplus of HUF 49 billion was generated in the budget – thus, the five-month deficit decreased to HUF 2,548 billion – announced the Ministry of Finance (PM).
According to the budget law adopted by the parliament, this year’s deficit could be HUF 2,514 billion, 2.9 percent of GDP, i.e. the May deficit is still higher than the amount allowed for the entire year.
Although the budget law would still oblige the government to implement the previous goal, the cabinet nevertheless raised the expected deficit to 4.5 percent of GDP, HUF 3,982 billion, and plans with this amount. But the HUF 2,548 billion in May is 64 percent of the increased deficit, i.e. well above the 42 percent that is acceptable in proportion to time.
The government is committed to reducing the budget deficit and public debt, reducing the deficit to 4.5 percent of GDP this year and 3.7 percent next year – said Finance Minister Mihály Varga, according to the ministry’s announcement, after receiving Péter Lakatos, the president of the National Association of Employers and Industrialists, in his office. The minister also said that Hungary could only reach the 2.9 percent GDP-proportionate deficit planned for this year in 2026. On the one hand, this means that the government will not start a drastic adjustment, on the other hand, it may also indicate that the 4.5 percent deficit target will now actually be kept. If we take it seriously that they want to achieve 4.5 percent, then a few hundred billion adjustments are still needed.
The reduction of the budget deficit is not helped by the recent ruling of the European Court of Justice, which stated: the Hungarian government, or rather Hungary’s refugee regulations, violate EU law, therefore the court imposed a lump-sum fine of 200 million euros (HUF 80 billion) on the country, which is increased by HUF 400 million per day until the government aligns EU and Hungarian refugee law.
This also means that this year’s budget may be burdened by an additional unplanned extra expenditure of more than HUF 100 billion, which increases the deficit.
Prime Minister Viktor Orbán spoke on state radio on Friday that the government is looking for a solution so that the penalties imposed on Hungary are paid by those who profit from “migration and war”. The Prime Minister’s statement would in principle mean new special taxes, but it is not clear which sectors the government wants to burden them with
On the other hand, there are also encouraging signs in the state budget: on the one hand, a surplus of HUF 49 billion was generated in the budget in May, which last happened in 2016. It can be seen from the PM’s material that the current surplus is due to the fact that the European Commission fulfilled its transfer related to the increase in teachers’ salaries at the end of May.
And indeed, HUF 186 billion in support arrived from Brussels in May, which is almost four times the amount of transfers in May last year – that is, the surplus is really almost exclusively due to this transfer.
The increase in tax revenues is a clearly positive sign: although corporate tax payments are still stagnating – not least due to the reduction of certain special taxes – personal income tax revenues increased by 13 percent due to wage increases. However, HUF 408 billion flowed in from VAT in May, which is 44 percent higher than last year.
If the growth remains, albeit at a slower pace, in the coming months, then the increasing VAT revenues can stabilize the budget, which, if coupled with strict management on the expenditure side, can also reduce the deficit in the coming months.