In contrast to the previous year, the anticipated growth for this year is expected to possess a more balanced structure.Continue reading
It would be a mistake to reintroduce austerity measures that have already failed miserably and proven to be ineffective, as this would not only stifle the ongoing recovery but also lead to revenue shortfalls and higher deficits, writes Gergely Suppan in his recent article in Világgazdaság.
According to the chief economist of the Ministry of National Economy, economic growth is needed to sustainably reduce the budget deficit through tax revenue growth and automatic stabilizers.
The government has made several changes to the fiscal plan, with the deficit target revised to 3.9% of GDP at the end of 2022, and 5.2% in October 2023, but preliminary data suggests it could approach 6% of GDP. While rapidly changing economic conditions and external shocks can be identified as the reasons for the rising deficit figures,
the government has partially adapted by implementing extra profit taxes, delaying investments, and allowing for a higher deficit than originally planned.
However, to counterbalance the external shocks, the government has also avoided austerity measures directly affecting the population and general tax increases that would undermine competitiveness, with a very good reason. As a large part of expenditure is predetermined, there is no space for major expenditure cuts.
After the technical recession that ended in the second quarter of 2023, the economy has returned to growth. Wage increases at the beginning of the year and the sharp rise in real wages expected this year could contribute to a pick-up in consumption.
Targeted government subsidies, falling interest rates, and improving domestic demand conditions should also help investments turn around.
Working capital investments coming on stream during the year will also enhance growth prospects.
Capacity under-utilization is visible in industry, construction, and most services sectors, meaning that the economy is certainly performing below potential output, resulting in tax revenue shortfalls and higher-than-planned state budget deficits.
Regarding austerity, Gergely Suppan summarizes that with the restrictions in place, families and Hungarian businesses would be the most adversely affected.
Via Világgazdaság; Featured Image: Pixabay