The government has drafted next yearʼs budget with increased reserves and a smaller deficit to provide a defense for possible crises on international markets, ensuring "secure growth," Prime Minister Viktor Orbán said in his regular weekly interview on public radio on Friday.
The 2019 budget will be "robust" and "earthquake proof," providing defense against risks posed by rising interest rates, high levels of indebtedness, especially among euro zone members, and the impact of possible trade wars, the prime minister was cited as saying on Kossuth Radio by state news agency MTI.
Hungary needs to be vigilant with regard to these risks because of its small, open economy, he added.
"Itʼs not raining yet... but clouds are in the sky," Orbán said. The increased budget reserves are an "umbrella," he added.
Orbán vowed that international crises would not divert the government from continuing to strive to achieve its goals: boosting economic growth, supporting families with children, and continuing to reduce unemployment.
The 2019 budget bill targets a deficit of 1.8% of GDP, well under the 2.4% target in the 2018 budget. The bill would also raise fiscal reserves by 50%. The government is expected to submit the budget bill to Parliament on June 13, and a vote could be taken on June 20.
The deficit goal set in the governmentʼs draft 2019 budget bill, as well as the foreseen reduction of the state debt to GDP ratio, are achievable, the Fiscal Council was reported as saying Thursday in an opinion on the draft, noting at the same time risks to growth.
Besides the targeted drop in the general government deficit, the bill also targets a reduction of the state debt ratio to 70.3%, from the 72.9% foreseen for the end of 2018.
In addition, the government foresees the structural deficit at 1.7% of GDP next year, a drop from 2.1% targeted for this year, but still over the 1.5% medium-term budgetary objective (MTO).
"Meeting the undertaken structural balance requires steps not endangering economic growth," the Councilʼs opinion stated.
On May 23, the European Commission warned Hungary of a "significant deviation" from the MTO in 2017, and proposed the Council adopt a recommendation for the country to take structural improvement measures amounting to at least 1% of GDP to put the country on an appropriate adjustment path towards the MTO within five months.
The Fiscal Council said that the budget draft is based on 4.1% economic growth in 2019, which exceeds analystsʼ projections varying between 2.8% and 3.5% and can be achieved only if wages and employment grow at the projected high pace and household consumption rises as a consequence at the assumed high pace.
The draft budget targets a 3.8% rise in non-consolidated revenues of the central government subsystem next year, and a 1.8% rise in its expenditure. The draft also projects an annual 8.8% rise in the gross average wage, a 1.5% rise in employment, and a 3.9% real-term increase in household consumption.
The projected 9.5% rise in gross fixed assets accumulation or investments assumes a dynamic rise of lending and private sector investments, which are still significantly influenced by EU and Hungarian budget-funded developments, the Council noted.
Steps to improve competitiveness may support the achievement of the projected growth rate, but uncertainties in the international economic environment may add to risks, the Council added.
Tax revenue targets can be at risk if wages and consumption grow slower than assumed, it warned, while also specifically pointing out the VAT revenue target among revenue risks. The draft targets a 9.5% rise in revenue from consumption-related taxes, compared to the 2018 target, including a 11.6% rise in VAT revenue alone. It projects annual average consumer price inflation of 2.7%, nearing the central bankʼs 3% mid-term target.
The Council identified, in contrast, a positive risk in EU funding inflow as the draft assumes a relatively low inflow.
In light of the risks, the Council said it considers the planned size of the Country Protection Fund, set up to manage unforeseen risks, as necessary. The draft bill contains HUF 60 bln for the fund, and a further HUF 110 bln of reserves set aside for extraordinary government measures.