MNB: Government plans considerable easing in 2017 budget bill

Banking

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The 2.4% ESA deficit targeted by the government in the 2017 budget bill amounts to considerable easing compared to the dropping deficit trend set in Hungaryʼs 2015 convergence plan or expected in the MNBʼs March Inflation Report, the National Bank of Hungary (MNB) said in its Budget Report published today, according to Hungarian news agency MTI.

Some budget revenues could fall below plan in 2017 so the targeted deficit could be reached if part of the reserves in the budgetʼs Country Protection Fund – the equivalent of 0.1% of GDP or about half of the HUF 60 bln fund designed against unforeseen risks – remain unspent, the MNB concluded. 

The MNBʼs projections for taxes on consumption as well as payroll taxes are under the targets in the budget bill. On the expenditure side, the central bank sees an overshoot of spending on the revamped home purchase subsidy scheme, but this could be balanced out with lower co-payments on EU development funding. The report projects preliminary allocations of EU funds of HUF 1.678 trillion, under the HUF 2.239 tln target in the budget bill.

The MNB analyzes the 2017 budget bill in the report it prepared to help the work of the Fiscal Council, the members of which include the MNB governor. Parliament is scheduled to take the final vote on the bill on June 13.

According to preliminary data, the ESA deficit was 2% in 2015 and a similar 2% is targeted by the government for 2016.

Gross government debt, calculated along the EUʼs excessive deficit procedure (EDP) methodology and with an unchanged exchange rate, of HUF 313.1 to the euro at the end of 2015, could drop from 75.3% at the end of 2015 to 74.5% by the end of this year and drop another 0.8 of a percentage point to 73.7% at the end of 2017.

The MNB puts GDP growth at 3% for 2017, under the 3.1% growth rate in the budget bill. The MNBʼs 2.8% projection for the increase in household spending is also under the 3.7% budget bill target.

There is a marked difference in investment and inflation figures, as well. The budget bill puts investment growth at 9.1% next year, while the central bank sees 4.1% growth. Inflation is projected to reach 0.9% in 2017, under the MNBʼs 2.4% forecast. New tax measures may explain the difference, the MNB said.

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