Most notably, the package will exempt mothers with two and three children from personal income tax for life. An extension of the existing benefit for women with four or more children, this will be introduced in phases, beginning in October this year for women with three offspring. For those with two children, the exemptions will commence from January 2026 for women under 40, continuing until 2029 for those aged 60 and above.
Pensioners will also benefit from this latest round of giveaways, being eligible for VAT refunds on purchases of vegetables, fruit and dairy products up to a capped sum.
Declaring the moves “a world sensation,” Orbán opined, “I am also convinced that more children are born when mothers can feel financially secure having children.” Opposition politicians were quick to denounce Orbán’s entire speech. Tisza Party leader Péter Magyar accused the prime minister of avoiding such issues as the systematic destruction of state healthcare, the shortage of nurses and “the many trillions of forints of EU funds missing due to his family’s industrial-scale corruption.”
Meanwhile, analysts worked overtime to assess how these measures would be funded. The prime minister, ever optimistic, claimed that an “accelerating economy, business support programs and full employment” could generate the necessary sum “while reducing the budget deficit and the national debt.”
Fine words, except economic growth in the final quarter of 2024 was an anemic 0.1%, according to Central Statistical Office adjusted data. Independent economists forecast 2-2.5% as a better-case scenario for this year and were warning before Orbán’s speech that the government was likely to overshoot its target for the budget deficit of 3.7% of GDP.
An analysis by S&P Global Ratings stated that the government was taking “economic risks” with pre-election spending promises that make it harder to reduce the budget deficit and stabilize the forint.
Asked by the Budapest Business Journal about the likely results of the measures, OTP Bank noted that since only a part of the package will be effective in the second half of this year, the effects on the budget are likely to be a modest HUF 118 billion, or just a 0.13 percentage point increase, in outgoings. However, the impact will mount in subsequent years as more measures take effect (see tables).
“As a result, the deficit in 2025 under a no-policy change scenario would reach 4.7% according to our calculations, only moderately higher than the [OTP] 4.5% estimation before the announcement,” Gergely Tardos, senior economist at OTP Bank, told the BBJ.
Nevertheless, to reach the 3.7% target, the government would still necessitate cuts in state spending.
“We are not aware so far of any new measures to counter the negative effect of the VAT refund and tax exemptions for mothers of three, but as mentioned earlier, the effects this year are relatively small compared to later years,” Tardos argued.
He cautioned, however, that other measures, such as the one-off, six-month extra salary for law enforcement and military employees, will also comprise a significant budgetary outlay next year.
Tardos also noted that the bank’s calculations were partially based on government figures and that, unlike many other analysts, the estimations were based on the net effect of the measures.
“That means that we accounted for the fact that the extra income for households will increase consumption and [hence] the budget’s VAT revenues. For this reason, our numbers may be lower than those from other sources,” he said.
After completing his second, six-year stint as governor of the National Bank of Hungary (MNB), György Matolcsy stepped down, allowing former Minister of Finance Mihály Varga to take the helm as of March 4.
Paying tribute to MNB staff at a ceremony to mark his departure on Feb. 27, the outgoing governor presented a book summarizing what he termed “the challenges, achievements and successes of the central bank” under his leadership, according to a statement on the MNB’s website.
Titled “Twelve Years in the Service of Stability,” a period somewhat immodestly described by Matolcsy as “the golden age of the central bank,” the volume recalls the MNB’s efforts to preserve the stability of the domestic economic and financial environment in difficult times, including Hungary’s emergence (in part) from the financial crisis of 2008-9 and the COVID pandemic. Matolcsy also faced a rapid rise in the price of energy worldwide after the Russian invasion of Ukraine.
“In October 2022, the central bank prevented a significant depreciation of the forint with a crisis management measure, which could have led to a euro exchange rate of up to 500-700 forints,” he said in what was presumably a reference to the bank’s decision to raise the overnight deposit rate to 18%.
Matolcsy’s leadership has not been without controversy, however, with critics noting the loss in value of the forint. When appointed, the Hungarian currency traded at HUF 295 to the euro; on Matolcsy’s departure, it hovered around HUF 400, a 35.6% loss in value against the common currency.
In recent years, the erstwhile governor has also had an ongoing feud with Márton Nagy, Minister for National Economy and formerly deputy governor of the MNB under Matolcsy, for the minister’s Keynesian approach to fuelling economic growth using cheap credit.
The irony here is that Matolcsy’s own so-called “unorthodox economic policy” from 2013-2020 was based on precisely the same Keynesian theories to kick-start growth.
György Surányi, himself MNB governor twice between 1990-2001, accepts that easy-credit policies were justified in the first years of Matolcsy’s tenure but lambasted his successor for continuing them well beyond sustainable limits.
This was especially true from 2017 when the economy was growing at some 4.5% annually, a performance impossible to sustain given Hungary’s productivity growth of just 1-1.2%, Surányi argues, and it was such a policy that helped lead to inflation well beyond the regional norm in the crisis of 2022-23.
But what of the MNB under Varga’s leadership and with Andrea Máger appointed as the new member of the rate-setting council?
Gergely Tardos, senior economist at OTP Bank, envisages little change under the current economic circumstances.
“[The MNB’s] room for maneuver has narrowed substantially, given domestic inflation developments, the forint exchange rate, the monetary policy of the world’s major central banks and cautious global risk appetite,” he told the BBJ.
Further, given that Varga stressed the importance of forint stability during his parliamentary hearing, this “currently leaves no room for easing,” Tardos reasoned.
“We expect the focus will be on long-term yields and the EUR/HUF exchange rate rather than the short-term yield curve. The new governor might change the long-term exchange rate trajectory as well, as in a good scenario, the depreciation of the last few years could be replaced by a more flattish trajectory,” he concluded.
This article was first published in the Budapest Business Journal print issue of March 7, 2025.
Producing journalism that is worthy of the name is a costly business. For over 30 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.
