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2014 budget bill: Key projections, highlights

MNB

The sitting government submitted its budget bill for 2014 to Parliament yesterday and as the review/approval process gets started, BBJ lists some of the highlights within the fiscal plan for next year below.

The basic numbers
In submitting the bill, National Economy Minister Mihály Varga reiterated that the budget assumes GDP growth of around 2%, a 2.9% general government deficit and 2.4% average annual inflation. The budget bill figures GDP of HUF 30.629 trillion next year and targets a deficit of HUF 924.8 billion. 

HUF 120 billion in reserves and HUF 100 billion in the “country protection fund” are accounted for in the bill as well. The budget allocates HUF 4 billion for deferment of student loans for Hungarians who decide to have children.

Varga stated that reductions in household utilities prices this year would save Hungarian households about HUF 100,000 on their bills and that an expansion of family tax preferences would supply HUF 53 billion more with households in 2014.

Forex-based maturities to be financed through bond issues
The 2014 budget bill plans to finance next year's deficit and maturing forint debt from forint-based issues and to repay maturing foreign-exchange debt from foreign-exchange issues. Foreign-exchange maturities will total €5.4 billion in 2014, and are planned to be financed through market issues of foreign-currency bonds.

In addition to the bonds, Hungary is expected to take €500 million in development loans from international development institutions to finance investment programs approved by the government.

The bill plans for sale of the euro-denominated domestic bonds (PEMÁK), which pay interest pegged to Eurozone inflation and were introduced in late 2012, and residency bonds offering the accelerated issue of residency permits to also contribute to foreign-exchange financing. Foreign-currency maturities in 2014 include €2.7 billion in foreign-exchange bonds, a €2 billion repayment on the loan extended by the European Union at the time of the economic crisis in 2008 and €700 million in other loans.

VAT revenue target: HUF 3 trillion
The budget bill targets revenue from VAT of HUF 3 trillion, slightly up from the HUF 2.953 trillion target for 2013. The government targets a 1.9% increase in consumption next year, with real wages set to rise by 2%. VAT revenue for the first eight months of 2013 came to just over 61% of the full-year target, the latest National Economy Ministry data show.

The 2014 budget targets HUF revenue of HUF 932 billion from excise tax, down from the HUF 947 billion target for 2013. Revenue from the financial transaction duty is set to reach HUF 269 billion in 2014, well under the HUF 301 billion target for 2013. The rate of the duty was raised as of August 1 and Hungarian financial institutions must pay a top-up on the duty this year because of a large shortfall that became apparent early in the year.

Revenue from the telecommunications tax is targeted at HUF 57.0 billion in 2014, over the HUF 44.0 billion target in 2013. The target for insurance tax revenue is HUF 28.0 billion as against 27.5 billion this year.

Corporate tax revenue target up HUF 38 billion
The budget bill projects net cashflow-based interest spending to drop sharply to HUF 1.0734 trillion (or 3.5% of GDP) in 2014. The drop will be 5.9%, Econews calculated based on net interest spending projected at HUF 1.1412 billion in the 2013 Budget Act.

Net interest spending to fall sharply
On an accrual basis, net interest expenditure is projected to fall to HUF 1.127 trillion (3.7% of GDP) next year. Interest expenditure will fall, as the recent sharp fall of market forint yields will more than counterbalance the rise resulting from a slight rise of state debt in nominal terms, according to the text of the bill.

State debt projection: 76.9% of GDP
The government expects the country's state debt to reach 76.9% of GDP at the end of next year. The ratio was calculated assuming forint exchange rates of 296.9 to the euro, 240.6 to the Swiss franc and 225.0 to the US dollar.

In absolute terms, central government debt is set to reach HUF 22.9767 trillion. The budget bill puts local council debt at HUF 456.0 billion and the debt of other public-sector institutions at HUF 163.4 billion. Hungary's state debt is expected to reach 77.4% of GDP at the end of this year. Debt and the debt ratio was calculated at the same exchange rate for the end of 2013 and 2014, in line with the Stability Act.

Reduction to VAT on meat
Next year's budget establishes the possibility of reducing the VAT rate on meat, though Varga pointed out that the government has still not taken a decision on the details of such a measure. Amendments to the tax law will be submitted to Parliament within two weeks, he stated, and the government will discuss the changes at a cabinet meeting.

The farm and economy ministries re-started talks on lowering the VAT rate for pork and poultry from 27% early in September. Rural Development Minister Sándor Fazekas said after the talks began that the preferential VAT rate would likely be 5%. Introducing the rate for pork and poultry alone would result in a HUF 10 billion budget revenue shortfall, Fazekas reckons.

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