New budget: Hungary scores another fiscal goal in the European cup of financial stability
While Hungary’s national football team continues to surprise at the UEFA European Championship, Hungary surprises in another European competition. For the second year in a row, the country accepted next year’s budget during the spring parliamentary session to build on Hungary’s favorable economic prospects in today’s Europe. Next year’s budget is Hungary’s secret formula to advance on its debt-slashing, GDP growth path.
Tax cuts and a boost to the construction sector best describe Hungary’s 2017 budget that was accepted last Monday, just in time for most ministers and MPs to fulfill another sweet national duty: cheering on the country’s national football team. With economic forecasts projecting growth of 3.1 percent, low inflation, an ESA fiscal deficit of 2.4 percent and a lower general government debt-to-GDP ratio, the 2017 national budget is, similar to previous years, expected to beat many other EU Member States’ projections. So optimism is due, but we should not forget the long path ahead.
One of the greatest financial innovations in next year’s budget is the separation of development and operational costs. This strict financial planning allows only the former to qualify for deficit funding. In other words, Hungary only takes loans for projects that invest in its future, while state spending on its functioning will not exceed its revenues.
The budget leaves 55 billion HUF with households, lowers the VAT on certain products and offers a career model to public servants after rationalizing the public sector. All these aim to boost domestic consumption.
2017’s budget projects a record high surplus, up to HUF 205 billion, higher than in previous years. It is a clear sign that Hungary, despite upcoming elections in 2018, is dedicated to maintaining strict financial control, similar to its budgets of 2013 and 2014. When the first Orbán government was voted out in 2002, Hungary’s debt-to-GDP ratio was well below the Maastricht threshold of 60 percent, and in the three years of irresponsible spending by the Socialist-led government that followed, Hungary’s debt-to-GDP peaked well above 80 percent. After next year’s budget, the debt-to-GDP ratio is expected to shrink below 70 percent again, while the economy is expected to continue growing.
Ten years ago, just two years before the economic crisis, the then Socialist prime minister was caught on tape admitting to faking Hungary’s economic numbers in order to get re-elected. It started as a small snowball, but an economic avalanche soon began to bury Hungary. No sane person would have bet on Hungary’s economic revival back then. Yet, here we are ten years later, with one of the highest GDP growth figures in Europe over the past few years, shrinking debt and historic highs in employment and investment. The 2017 budget, Hungary scores another goal in the struggle for economic progress, beating many other European teams.