Gov’t confident “boring” 2014 budget will boost economy

Parliament approved the cornerstone figures of the 2014 budget after the budget committee passed amendments that raised key entries such as the cash flow deficit.

“Next year’s budget bill is in line with the government target set in 2010: increasing employment, keeping the budget deficit under 3% and in general, a sustainable and stable management of public finances,” said Economy Ministry deputy state secretary Péter Benő Banai.

The most notable amendment that was submitted covered HUF 60 billion in municipal debt that is to be assumed by the state. The planned budget deficit won’t be affected by the amendments and the accrual-based EU-conform gap for 2014, which will be 2.9% of gross domestic product, Benő Banai told the budget committee. The original bill earmarked only HUF 4 billion for this purpose.

The other significant item was raising central subsidies to the Budapest public transport company BKV from HUF 10 billion to HUF 24 billion. Benő Banai said that increased revenues from value added taxes and additional state-assets related revenue would neutralize increased spending.

The budget cornerstones were passed with 219 votes in favor and 30 opposed. The nays came from Jobbik and the socialist MSzP and while the green LMP’s representatives abstained.

Elections ahead
“The 2014 budget is, like this year, a predictably boring budget,” Economy Ministry state secretary Zoltán Cséfalvay told U.S. broadcaster CNBC.

His words underlined Economy Minister Mihály Varga’s earlier comments that the government would refuse the temptation of drafting a budget bill laden with handouts ahead of the next general elections, likely in April.

There are nonetheless doubts about the feasibility of the government’s forecast for this year and next and consequently whether the declared stringency will actually be enforced.

“Current data indicates that although this year’s GDP will be better than earlier expected, Policy Agenda doesn’t believe that the lower than 3% deficit target can be reached,” the think tank said.

It argues that since the aggregate statistics of the first quarter won’t be available at the time of going to the polls, the government can communicate that the implementation of the budget law is progressing as planned, and make any necessary corrections after reelection, allowing it a degree of comfort.

Péter Oszkó, former finance minister under the Bajnai government, said that whether the bill is an ‘election budget’ would only be seen after the fact, but noted the main issue that is not addressed is that the economy is on a poor trajectory and there is no hope of sustainable growth.

“There is only a propaganda of success, the government is taking more out of people’s pockets than it’s putting in,” he told commercial broadcaster ATV

Smooth sailing
“Step-by-step, Hungary’s economic policy is growing much more predictable, and I think this is a good message to the world of business,” Cséfalvay insisted.

If the government should be in need of any ammunition to support its claims, it has quite a few to choose from. The third quarter’s preliminary 1.7% year-on-year growth shows that the previously set target for 2013 could be exceeded, raising hopes for 2014 also.

The state debt management agency ÁKK conducted a second, successful dollar bond auction for $2 billion this year that was five times oversubscribed, indicating strong investor demand for Hungarian paper.

The government’s plans were also reassured by the European Commission which placed the country’s budget deficit below the 3% mark in its latest, September review, which means there is no immediate threat of Hungary reentering the excessive deficit procedure that was finally lifted earlier this year.

“The country appears to be on an improving track, 2013 will provide the basis for 2014, spending remained under control and seems to be well manageable, while the rollback of the shadow economy can also boost revenues, pointing to a calm year in 2014,” head of the Budget Council Árpád Kovács told public media.

The notions of the budget controller are underlined by widespread expectations that the U.S. Federal Reserve will keep its stimulus campaign going for another several months, leaving plenty of dollar liquidity on the global market. The demand at the latest auction indicates Hungary won’t have any short-term troubles getting financing.