Parliament Approves 2020 Budget

Mihály Varga, Minister of Finance (left), Szilárd Németh, Parliamentary State Secretary from the Ministry of Defense (right) and other MPs vote on the 2020 budget at the plenary session of the Parliament on July 12, 2019. Seated in the second row, at far right, is the DK (Democratic Coalition) leader and former Socialist Prime Minister, Ferenc Gyurcsány. Photo by MTI/Attila Kovács

Opposition parties submitted nearly 800 modifications to the draft, all of which were rejected thanks to the huge majority enjoyed by governing party Fidesz.

According to the bill, next year’s budget revenue is targeted at HUF 21.426 trillion while expenditures is set at HUF 21.783 tln, making for a HUF 367 billion of budget deficit.

That latter figure is 1% of the GDP, calculated according to the European Union’s accrual-based accounting methodology. The target is under the 1.5% of GDP target in Hungary’s updated Convergence Program submitted to Brussels in April. Compared to this year’s budget deficit, the 2020 figure is less than half of that.  

As for the public debt level, it is set to stand at 65.5% of GDP by the end of 2020, down from 68.6% targeted for the end of this year.

The budget sets aside HUF 488 bln in reserves, including HUF 378 bln in the National Protection Fund, and HUF 110 bln for “extraordinary government measures”, more than double the total of HUF 225 bln of reserves in the 2019 budget.

As stated in the draft bill, the Hungarian economy is projected to grow at around 4% in 2020, paired with a consumer price inflation of 2.8%.

As Minister of Finance Mihály Varga said after the vote, the goal of the budget is to strengthen families, protect economic achievements and maintain the country’s security, all while pursuing an economic policy based on tax cuts and wage increases. According to the minister, the 2020 budget would channel more resources to all spending areas.  

Family Protection  

Next year’s budget, like its 2019 elder sibling, will focus on families; Varga insisted all necessary resources will be put towards implementing the family protection plan. In 2020, support for families will increase to almost HUF 2.228 tln, or around two-and-a-half times the 2010 figure.

According to the minister, extra resources will be channeled to education, culture, leisure activities and tourism without endangering the deficit target of 1% of GDP or further reductions to the public debt.

While the draft bill was passed with a vote of 127 for, 58 against and no abstentions on July 12, with not one submitted modification approved, opposition parties were quick to point out the weak points of the budget, as they saw it.  

The MSZP (Socialist Party) said that all Hungarian economic indicators were worse than in neighboring countries. Socialist MP Lajos Korózs singled out pensioners, saying that the gap between seniors and the younger generations would increase due to the government’s plans to raise wages by 8.5% while increasing pensions by only 2.8%.  

He added that the purchase power of pensions in Romania is higher than in Hungary, adding that pensions worth below HUF 100,000 a month should be raised.

In the meantime, the macroeconomic indicators suggest that there is no need to worry about the path of the Hungarian economy thus far. Way above analysts’ expectations, industrial output in Hungary rose 8.7% year-on-year in May according to unadjusted data, the Central Statistical Office (KSH) said, and the second reading of the data confirmed that, with working-day adjusted data showing that production rose by 6.1%.  

Rising Production  

Within industry, production grew by 8.7% in manufacturing (representing the decisive weight at 96%), and went up by 15.2% mining and quarrying. The output of energy industry (electricity, gas, steam and air-conditioning supplies) rose by 10.4%, mainly as a result of the cooler weather compared to the previous year. (According to the Hungarian Meteorological Service the May 2019 average temperature was 5.5ºC, or 41.9ºF lower than the May 2018 average.)

Industrial production grew in every region compared to the same month of the previous year, the KSH said. The largest volume growth (14.4%) was recorded in Pest region; the statistics office measured volume increases of between 0.9 and 14.2% in the other regions. In the first five months of the year, industrial output was up 6.7% from a year earlier.

International institutions and analysts have once again expressed that they agree with the path the Hungarian economy is taking right now. The European Commission raised its projection for Hungarian economic growth this year to 4.4% in its summer forecast from the previous 3.7%. The growth projection is above the government’s target of 4%.  

In the first quarter, Hungary’s economy grew by an annual 5.3%. The commission has, however, left its forecast for growth next year unchanged at 2.8%. It believes that average annual inflation will hit 3.2% in both 2019 and 2020.

Morgan Stanley analysts are a bit less optimistic, stating that the Hungarian economy will expand by 3.9% this year and slow to 3.2% in 2020.  

Capital Economics analysts expect annual growth of 4.3% in 2019, although they are more pessimistic about next year’s outlook: according to their projection, the growth rate will fall back to a mere 2% in 2020, mainly due to ongoing weak performance of Hungary’s main partner economies.

Numbers to Watch in the Coming Weeks

The macro calendar for the next two weeks will not be jammed with exciting figures. On July 29, employment and unemployment data for the April-June period will be out, followed by earnings for the January-May period the next day. The number of construction permits will throw light on the current state of the construction sector on July 31, based on data from the first half of 2019.