Budget Must Adapt to Economic Environment - Varga

MNB

The budget must adapt to the economic environment, while the economy determines fiscal performance, Finance Minister Mihály Varga said at a presentation at the Károli Gáspár University late Thursday, according to a report by state news wire MTI.

Varga said the budget had "adapted well" in recent years, building up reserves when the economy grew at a faster pace and opting for financing when the situation was more difficult.

He added that sustainable economic growth in the long term wasn't realistic without balance.

Acknowledging a debate over whether fiscal policy was strict enough, Varga said some budget financing couldn't be pulled without "serious social damage", pointing to the decision in 2008 by the government at the time to cease annual bonuses for public sector workers and pensioners.

"There are some results we can't allow to be rolled back," he said, citing Hungary's high level of employment as an example. He added that OECD experts believed Hungary's pension system was stable and wouldn't require any major restructuring for 10-15 years.

Responding to criticism of Hungary's 27% VAT rate, Varga said the government had adopted a policy of focusing on consumption-based taxes to generate revenue while reducing the tax burden on income and labor, noting the 9pc corporate tax rate, the lowest in Europe, and the 15% personal income tax rate, the third-lowest in Europe. At the same time, the tax system offers incentives for families with children and for savings, he added.

Varga conceded that the 2023 budget deficit was expected to be over the target because of the higher cost of debt servicing and dearer energy. 

The government expects GDP to grow 3-4% this year, he said, adding that growth could be aided by the tools of tax policy.

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