All European Union countries are expected to reach their MTOs, or to be heading towards them, by adjusting their structural budgetary positions at a rate of 0.5% of GDP per year as a benchmark.
In June 2018, the EC recommended Hungarian officials take the necessary steps to ensure that the nominal growth rate of net primary government expenditures does not exceed 2.8% in 2018, which corresponds to an annual structural adjustment of 1% of GDP. It also said Hungary should use any windfall gains for deficit reduction.
On Wednesday, the EC proposed that the Council adopt a revised recommendation to Hungary to correct its “significant deviation” from the adjustment path towards the MTO. The EC also said it proposes a revised recommendation of an annual structural adjustment of at least 1% of GDP in 2019, noting that the general government deficit was set to increase to 2.4% of GDP in 2018, from 1.6% in 2016, and is forecast to remain slightly under 2% in the coming two years.
In a response to the ECʼs June recommendations, submitted by the October deadline, Hungaryʼs government said it would stand by the original deficit target of 2.4% of GDP for 2018.
“We plan to realize the medium-term deficit target without sudden, large-scale interventions into economic processes, relying on the effects of the high-rate growth of economy supporting the budgetary balance,” the government said. Putting the economy on a path of long-term growth will reduce the deficit from 2018 and it will fall to 0.5% of GDP by 2022, it added.
The government noted that big measures to reduce the deficit would have a concentrated effect at the end of the year and “could have explicitly negative effects on the confidence of businesses and the population.”
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