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Apr 27, 2016

2017 Budget Bill outlines plans for government expenditure on healthcare, education and welfare

Budget plans enable every Hungarian to take a step in the right direction

Following our item on VAT tax rate cuts on Tuesday, Mihály Varga, Minister for National Economy, has outlined moves to increase government expenditure on healthcare, education and welfare.

During his introduction to the 2017 budget bill, which was handed over to the Deputy President of Hungary’s National Assembly yesterday, Minister Varga said the plans enable every Hungarian to make a positive step in the right direction.

Next year’s budget projects economic growth of 3.1 percent and a budget deficit of 2.4 percent of GDP. The government debt-to-GDP ratio is expected to fall even further over the course of the next two years.

Here are the key areas highlighted for reform in the 2017 budget bill.

Every area to receive more funding

The government will provide a higher volume of fiscal resources for each field: expenditures are set to increase by 270 billion HUF on education, 167 billion HUF on healthcare, 155 billion HUF on social security and welfare, 66 billion HUF on culture, 114 billion HUF on law enforcement, 5 billion HUF on local governments, 26 billion HUF on the judicial system, 10 billion HUF on foreign affairs and 5 billion HUF on defense.

VAT on some basic food to be lowered

As of January 1, 2017, VAT on milk, eggs and poultry are to be reduced to 5 percent. In addition, this measure will improve the competitiveness of domestic producers and boost retail sales. Besides VAT on basic food, that of restaurant services is also set to fall to 18 percent, and so does VAT on Internet.
In 2017, the personal income tax rate remains at 15 percent, one of the lowest rates ever seen in Hungary.

Next year’s budget will be comprised of three parts: the first is for the state’s operating revenues and expenditures, which is expected to post zero deficit, while the second and third will contain EU-funded and locally-funded development projects which may post some ESA deficits.

Government to preserve the real value of pensions

The hike of pension benefits is in line with the inflation rate. In case consumer prices grow less than the government prognosticates, pensions is real terms will increase, while in case inflation turns out to be higher than anticipated, pensioners will be compensated, “they must not suffer any loss,” Varga emphasized.

In 2011-2015, pensions rose by 21.5 percent, 8.8 percent above inflation, and this growth “has fully made up for the loss in pensions caused by former governments,” he added.

Extension of family tax incentives

Thanks to family tax allowances, the average income of families with two children is set to grow next year. The monthly amount of tax allowance for these families will gradually increase two-fold by 2019, from 10 000 HUF to 20 000 HUF. At first, this amount will rise, in 2017, to 15 000 HUF.

The government has also announced the largest housing program of all time: under the scheme, 211 billion HUF are to be allocated for the support of housing-related projects and measures for families. This amount covers expected costs of the Family Housing Allowance (CSOK), state-subsidized loans and lower VAT related to the building of new homes.