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Feb 28, 2016

Hungary’s Next Fiscal Goal: A Budget Deficit of Zero

In mid-February, addressing the Hungarian Parliament, Prime Minister Orbán again called for a zero-based budget to continue to reduce the country’s debt.

In 2015, “the budget deficit was 2 percent,” he said. “This is an excellent result, and I congratulate the minister of finance, especially in view of the fact that in 2009 the Hungarian budget deficit was twice that. It was more than twice that in fact: 4.6 percent – minus four point six percent. Any country in Europe would be happy with such an improvement. I suggest that we Hungarians should not be satisfied with it, however, because although the deficit may have fallen as a ratio of economic performance – as a proportion of GDP – it is still growing in nominal terms. Halting nominal deficit growth will eventually require a “zero-based” budget, meaning a budget in which we do not spend more than we generate, or in which we generate at least as much as we spend. If the goal is the reduction of debt, meaning government debt, then the annual budget cannot result in a negative balance.”

Minister of Finance Mihály Varga explained a few days later that the ministry is working on reaching this goal in the 2017 budget.

A zero-based budget would send a clear message that the government is committed to keeping the budget under strict control and help bring down the debt. By the end of 2015, the country’s debt-to-GDP ratio dropped to 75.5 percent, significantly lower than the 81 percent debt-to-GDP level that prevailed in 2010 when the Orbán Government took over, yet still much higher than the 52.7 percent debt-to-GDP ratio that the country had at the completion of the first Orbán Government’s term in 2002.