The Hungarian 2019 budget has been accepted by Parliament


ISTVÁN POSGAY
Senior Research Fellow


The bill on the 2019 budget was submitted to the Hungarian Parliament[1] by the Minister of Finance Mihály Varga on 13 June 2018, and the final vote was taken on 20 July, when it was accepted by Parliament. As Mr. Varga put it, this is the “safe growth” budget.

The government planned the submitted budget with the aim of maintaining solid economic growth, guaranteeing the security of the country, supporting families and facilitating full employment. Maintaining financial stability (decreasing the government debt to GDP ratio and the general government deficit) continues to be the defining economic policy objective of the next governance cycle, while improvements in demographics, competitiveness and productivity will also play a significant role.

According to the bill on the 2019 budget, the general government deficit (calculated in accordance with Maastricht criteria) is expected to be 1.8% of the GDP in the next year, and the government debt will decrease from 72.9% to 70.3% in 2019. It is an outstanding achievement that this value was 73.6% in 2017 while in 2011 it was over 80%. According to Mr. Varga, by the end of this parliamentary cycle it could be reduced to 60%. Within this range, the foreign currency ratio of government debt fell from 52% at the end of 2011 to 26% at the end of 2017, which significantly reduced Hungary’s foreign exchange exposure.[2]

The government calculates a 4.3% growth rate this year and expects a 4.1% GDP growth rate for next year, while the inflation rate is projected to be 2.7% in 2019. If growth is lower, or in the case of any external shock, the government plans to use the significantly increased budgetary reserve – a planned HUF 360 billion – to compensate any potential external or internal negative effects.

In comparison with 2018, budgetary spending will increase by HUF 466 billion (4.1%) to HUF 20,578 billion. This is 46.9% of the expected nominal GDP for 2019, which is projected to be HUF 43,935 billion.

The budget is divided into three parts: the domestic operating budget, the domestic accumulation budget and the EU development budget.

The next year's domestic operating budget will be balanced; expenditures and revenues are expected to stand at HUF 16,586 billion.

The total amount of the planned domestic accumulation budget is HUF 1,634 billion, its total expenditure is HUF 2,036 billion and its deficit is HUF 402 billion.

The EU development budget’s revenues are expected to reach HUF 1,359 billion while expenditures will be HUF 1,955 billion, so the deficit will be HUF 596 billion. [3]

Growth could be driven by the 3.9% growth in household consumption, based on a significant increase of wages (8.8%) and the planned 7.5% growth in investments, based on EU funds and housing construction. The foreign trade balance surplus might decrease due to the expectation that imports will increase by 7.4% and exports by 6.9%.

On the whole, central government budgetary spending will increase by HUF 204 billion, primarily due to the HUF 100 billion increase of reserves.

Next year – compared to this year – there will be HUF 15 billion more spent on education.

Healthcare spending will increase by more than HUF 128 billion, primarily due to the increasing funding of hospital care; almost all areas of healthcare will receive more funding next year.

The budget for the next year allocates HUF 100 billion more for pensions, providing a coverage for the 2.7% increase of pensions and the pension premium.

Funding for entertainment, culture and religion is expected to increase by more than HUF 85 billion, while the economic involvement of the state might decrease slightly. Next year, due to the decreasing number of employees in public employment schemes, the budget of the Start employment scheme will continue to decrease by HUF 45 billion, to HUF 180 billion.

The government will cover the increase of spending from the increasing tax revenues generated by the economic boom without levying new taxes; this means that budget revenues are expected to increase by HUF 828.6 billion to HUF 19,580 billion, according to the cash accounting principle.

Regarding corporate taxes, the government expects them to increase by HUF 30 billion, the revenue from the fixed-rate tax of low tax-bracket enterprises should increase by HUF 24 billion, while the revenue from the tax on small enterprises should increase by HUF 22 billion; at the same time, most tax categories are expected to produce higher revenues. Consumption-based taxes are expected to increase the most (HUF 561 billion), primarily because VAT revenues are expected to grow by HUF 447 billion because of increasing private consumption and the measures taken against the black economy. As wages continue to grow rapidly, the budget will get HUF 265 billion more from personal income tax. According to the six-year wage agreement, the rate of the social contribution tax will again decrease by two percentage points. The government expects that the revenue of this tax category will be some HUF 479 billion higher, which is caused not only by rising wages but also by the fact that the health care contribution will be integrated into the social contribution tax next year.

Overall, the 2019 budget will indeed be the budget of "safe growth". It provides – in the current the global environment which contains significant macroeconomic and political risks – the necessary guarantees to support social stability and promote economic development and welfare, which form the backbone of the Hungarian government’s strategy.

 

[1] See: Bill T/503. on the 2019 central budget of Hungary

http://www.parlament.hu/irom41/00503/00503.pdf (2018.08.13.),

and “Monthly Monitor 2018. June”, Századvég Economic Research Institute

https://szazadveg.hu/uploads/media/5b47a1a9b6717/szazadveg-havi-monitor-201806.pdf (2018.08.13.)

[2] Resolution 5/2018.07.17. of the Fiscal Council

http://www.parlament.hu/documents/126660/1456834/5-2018.07.17.+A+Költségvetési+Tanács+Véleménye+a+Magyarország+2019.+évi+központi+költségvetéséről+szóló+törvényjavaslat+zárószavazásához.pdf/31dc2d3b-0f53-aeab-5e39-f1dae00c35b2 (2018.08.13.)

[3] “All that should be known about the 2019 budget”, ORIGO 

http://www.origo.hu/gazdasag/20180613-koltsegvetes-2019-benyujtasa-varga-mihaly-altal.html (2018.08.13.)