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Parliamentary Debate on Budget Kicks Off

The general debate on next year’s budget bill has started in Parliament. The house will be discussing the draft proposal in the coming weeks, with the final vote due to take place on July 20. Hungary’s State Audit Office (ÁSZ) said in a statement this week that the budget is well grounded, supports stability and contributes to the sustainability of the Hungarian economy. Opposition parties, on the other hand, called it unfair, not sustainable and unpredictable.

The revenue targets in the government’s 2019 budget bill are fully achievable, ÁSZ said in reaction to the draft. It noted that the budget contains HUF 60 billion of reserves in the National Protection Fund, sufficient to counter remaining budgetary risks. In addition, reserves for “extraordinary government measures” and targeted reserves provide room to maneuver to address emerging risks, ÁSZ added.

The draft bill, called a “budget of safe growth” by the government, assumes economic growth of 4.1%, a state budget deficit of 1.8%, inflation of 2.7% and a lower government debt-to-GDP ratio for the year 2019. 

Together with the budget bill, a tax package for next year will also be discussed by the Parliament. The tax package was introduced to the Parliament on June 19. If passed, the bill ensures that tax reductions would leave several hundreds of billions of forints with families and enterprises and cut the administrative burden, Minister of Finance Mihály Varga said. 

According to the plans, the 15% personal income tax (SZJA) will remain in place, in spite of earlier suggestions about reducing it to a single-digit level. The government noted that the level of SZJA is already among the lowest in the EU.

As for the corporate income tax, which is the lowest in the EU, it is set to remain at 9%. 

Family Incentives

The government will also continue to broaden the existing family tax incentives. Next year, the amount of tax allowance for families with two children is to rise by HUF 5,000 per month, to HUF 40,000 per month in all, which will leave as a whole HUF 20 billion with 380,000 families. The so-called social contribution tax, payable by employers, is to be reduced once again from the current 19.5% to 17.5% in 2019. This reduction will leave a further HUF 130 bln in the economy over the course of one year.

The VAT of basic food stuffs such as poultry, pork, fresh milk and eggs will remain at 5%, and the rate of VAT on UHT and ESL milk will also fall to 5% next year.

In the name of simplifying the system, five kinds of taxes will be ended next year. As of 2019, nobody will have to pay the 75% surcharge, the special banking charge or cultural tax any more. The accident surcharge and the healthcare contribution tax will also cease to exist, as the former will be integrated into the insurance tax and the latter into the social contribution tax.

The often criticized fringe benefit system will also be reshaped, leaving only the Széchenyi Recreation Card in the system; however, these plans have already received so much criticism from worker’s unions that they will probably be fine tuned in the near future. 

Reactions on the first day of the debate were plentiful. In parliament, opposition parties were quick to point out the perceived weaknesses of the budget plans. According to the Hungarian Socialist Party, the draft is against the future, and favors the rich, while education and healthcare expenditures will be even lower, in GDP ratio terms, than was the case this year. 

EU Dependence

Representatives of the radical nationalist Jobbik said that the draft bill does not address the real problems of Hungarian society and will only cure the symptoms. Jobbik said that the 2019 budget will not ease the dependence of the Hungarian economy on EU funds, and will not solve the problem of emigration. The largest opposition party called the planned budget unsustainable.

Both LMP (the green-conservative Politics can be Different) and Párbeszéd (the leftist Dialogue) described the draft bill as unfair. The LMP harshly criticized the amount the budget allocates to the area of education, saying that in real value, the amount is less than it was in this year’s budget. The party also criticized the fact that the single-rate SZJA system will remain in place.

Párbeszéd said this is a budget of an unfair country, and also noted that in the ratio of GDP, the government plans to spend less on education, healthcare, old people and social expenditures. 

Opposition parties will propose modifications to the budget bill in the coming weeks, and a final vote on the bill will take place on July 20.

Numbers to watch in the coming weeks

The balance of the general government sector at the end of Q1 will be released by the Central Statistical Office (KSH) on July 2. The next day we’ll find out whether the 58-month expansion continued in May in the retail sector. On July 6, the first estimate of industrial production in May will be published. June’s consumer price index will be released on July 10.