Back in 2015, the government decided to put the following year’s budget up to vote in the spring session of the Parliament, an important decision to increase predictability and improve planning. This year is no different. Though 2018 will be an election year, the government has held to a tight fiscal policy in the new budget. Continued stability and growth make possible a boost in competitiveness and tax cuts for families.
We already had impressive indicators to report when Minister for National Economy Mihály Varga announced the proposed budget earlier this month. According to the Central Statistical Office, the annual deficit stood at 1.7 percent of GDP, exactly as the Ministry had predicted in the first quarter of 2016. Typically, the first few months of the year bring in the higher portion of the annual deficit (usually more revenue from taxes comes in later in the year), but recent statistics show that we had a significant budget surplus in April. We’ve had a steady decline over the last few years in the debt-to-GDP ratio, falling to 74.1 percent at the end of 2016, and on track to reach 60 percent in the coming years.
Other trends are also promising. Hungary expects a further increase in jobs, a further decline in debt, and a GDP growth above 4 percent in the next few years. During the first months of 2017, industrial production rose, according to both general and sectoral data, leading to a 7 percent growth. In parallel, the volume of retail trade has been on a steady increase for 44 months now.
The year 2018, according to the proposed budget, will yield a 4.3 percent economic growth, 2.4 percent government deficit, 3 percent inflation, and an overall decrease in state debt to GDP. That should mean an important step forward for the whole economy, especially for families, hard-working people and businesses fuelling the economic growth.
The government just submitted a 35 billion HUF (approximately 112 million EUR) package of tax cuts and each sector may expect a higher budgetary allocation next year. Unlike under previous governments, when spending was paid from loans, this expansion is financed by revenues from economic growth. The government holds fast to the priority that the debt-to-GDP ratio must come down and the annual deficits must remain below 3 percent.
VAT on everyday consumer goods will also continue to be cut. Value-added tax on Internet services and on certain foods will be slashed to 5 percent. Additionally, we’ll see further reductions in taxes on rental incomes and increases in housing support for families.
In one year, we have seen the number of private sector jobs go up by 121 thousand (in a county of 10 million). And we’re seeing not only more jobs, but better wages. According to last November’s wage deal, general minimum wages will grow in 2018 by 8 percent and skilled laborers are predicted to earn an additional 12 percent, following the minimum increase in 2017 (15 percent and 25 percent).
The budget awaits approval in the Parliament. It’s increasingly clear, however, that despite all that criticism and noise we once heard about “unorthodox” economic policies, Hungary’s economy has stabilized and now has a strong foundation on which to build.