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Another Early Bird Budget Presented

For the third year in a row, the cabinet has completed the draft bill of the budget for the upcoming year in the proceeding spring; if everything goes as planned, it will be passed by Parliament by mid-June.

“This is a budget for families who make their living by working,” Minister for National Economy Mihály Varga said as he introduced the 2018 budget bill to Parliament on May 2. The targets of the budget remained unchanged from this year’s: achieving full employment, maintaining economic growth and boosting security, Varga said.

As for the key figures of the bill, many of them have been known for a while. The government expects GDP growth of 4.3% in 2018, up from this year’s projected 4.1%.

The budget targets a drop in public debt to HUF 28.358 trillion at the end of 2018, calculating with a HUF/EUR exchange rate of 309.3. As a percentage of GDP, public debt is set to decline to 69.5% from a targeted 71.4% at the end of 2017.

The bill targets revenue of HUF 18.740 tln and expenditures of HUF 20.101 tln, leaving a deficit of HUF 1.360 tln or 2.4% of GDP. The planned deficit is higher than the HUF 1.166 tln gap targeted for 2017. The government is calculating with an average 3% inflation rate next year.

Besides families with children, the budget favors pensioners too: For the first time this year, Hungarian pensioners could get a year-end “premium” if GDP growth exceeds 3.5% and the deficit target is met, the economy minister explained.

Less From Corporate tax, More From VAT

The budget also allocates HUF 81 billion more for education, HUF 102 bln more for healthcare, HUF 287 bln more for pensions and social services, HUF 83 bln more for the police and security services and HUF 205 bln more for economic development, Varga said. It earmarks HUF 226 bln for home purchase subsidies for families (the so-called CSOK program). There is HUF 200 bln earmarked as a reserve.

When it comes to tax revenues, the cabinet is calculating that more money will come in from value added tax, excise tax and personal income tax, but a smaller amount from corporate tax. From the latter, the bill targets some 50% less in revenue in 2018 than this year (HUF 362.6 bln in 2018), and revenue from the bank tax will also be halved next year, coming to HUF 50.4 bln. The smaller amount from the corporate tax is mainly due to the fact that the Funding for Growth scheme of the National Bank of Hungary has expired.

Revenue from the financial transactions tax is set to stagnate at HUF 204.7 bln. Increased revenue is expected from VAT: according to the bill, the amount of VAT will be up 25% from the 2017 target, at HUF 3.090 tln. Revenue from excise tax is targeted at HUF 1.099 tln, 6% more than the respective target for this year. Personal income tax revenue is targeted at HUF 2.090 tln, almost 17% over the target for this year. Revenue from retail duties and fees is seen climbing by 22% to HUF 188.6 bln.

More to Allocate

The prime minister’s office and its related institutions will, altogether, get HUF 846 bln next year. The bill allocates HUF 220.1 bln for the Ministry of Foreign Affairs and Trade.

In healthcare spending, funding for general practitioners’ surgeries will rise by HUF 12 bln to HUF 124 bln. The government will spend HUF 2.315 tln on the health insurance fund, up from HUF 2.059 tln in 2017. Spending on local governments will rise by more than HUF 54 bln from this year’s HUF 641 bln to HUF 695.5 bln.

There will be HUF 5 bln more for government communication and consultation next year, increasing its budget to HUF 20.5 bln.

Pension funding for women who choose to retire early will increase to nearly HUF 260 bln from HUF 233 bln in 2017. Spending on old-age pensions will rise from this year’s HUF 2.501 tln to HUF 2.669 tln next year.

Not surprisingly, the draft bill attracted a vast amount of criticism from opposition parties. The Hungarian Socialist Party (MSZP) called the bill “the budget of corruption and injustice”. Dialogue for Hungary (PM) told the government to stop its “flaunting and large-scale theft”, and stop favoring the rich. “World-record VAT rate and taxes on employment, flat-rate personal income tax, low wages – everything remained the same in next year’s budget,” said Democratic Coalition (DK). According to Together – Party for a new Era (Együtt – a Korszakváltók), the bill is not a budget of security but one of theft, which ensures “bread and circuses”, instead of development. Hungary’s far-right Jobbik party said next year’s budget will not provide a positive change in the Hungarian economy, and will not bring a better life to families.

Numbers to watch in the coming weeks

First estimates of March industrial production will be published by the Central Statistical Office today (May 5), followed by the external trade figures, also first estimates, on May 9. April inflation data will be released on May 10, the performance of the construction sector in March will be published a day later. Second estimates and detailed data for the March performance of industry will come out on May 12. On the very same day, Fitch Ratings is scheduled to review Hungary’s sovereign debt rating. Further excitement is provided by the Q1 GDP data, set to be released on May 16.