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Gov’t Planning Large Deficit for 2022 Election Year Faces Criticism

Hungary Today 2021.05.05.

The government submitted the 2022 budget draft on Tuesday with the plan to reduce the budget deficit to 5.9% of the GDP in the 2022 election year from the expected 7.5% in 2021. But it has come under heavy fire both from the Fiscal Council and the Central Bank of Hungary for the insufficient reduction of the budget deficit and public debt levels. The government’s 2022 draft looks like an election-year budget that aims to inject a significant amount of money into the support of key voting groups.

Both the deficit and the public debt increased sharply in 2021, which according to the government, is due to the economic impact of the coronavirus epidemic. So much so that the government had to submit an amendment to the 2021 budget in April to parliament.

Hungary’s Fiscal Council (KT), tasked with advising the government on budget matters, agreed that the previous calculations became untenable, so the deficit target of the 2021 budget would have to be raised from 2.9 percent to 7.5 percent of the GDP.

Finance Minister: 2022 Budget Targets 5.2% Growth, 5.9% Deficit
Finance Minister: 2022 Budget Targets 5.2% Growth, 5.9% Deficit

Minister Varga said average wages were expected to grow by 8 percent next year.Continue reading

Last week however, the 2022 budget draft also came under heavy criticism when the KT found problems with the 2022 budget draft stating that the planned budget deficit of 5.9% (HUF 2,500-3,000 billion, EUR 7 – 8.4 bn) and public debt levels should be reduced more than according to the draft.

The council said the proposed 0.6% reduction in public debt (from 79.9% to 79.3% of the GDP) for next year, and the planned decrease in the budget deficit, were insufficient.

The panel’s warning is also surprising, because in the past years the Fiscal Council always found the budget goals realistic and in harmony with the aim of reducing the state debt ratio. The council is led by Árpád Kovács and its members include Central Bank president, György Matolcsy (who was the minister of economy in the 1st and 2nd Orbán gov’t), and State Audit Officer, László Domokos (formerly an MP of ruling Fidesz.)

The Central Bank of Hungary (MNB) shared the opinion of the Fiscal Council, suggesting that the economic environment would allow for a faster reduction of the budget deficit.

Finance Ministry Submits Budget Amendment to Parliament
Finance Ministry Submits Budget Amendment to Parliament

The finance ministry on Tuesday submitted to parliament the amendment to the 2021 budget on continued allocation of funds for coronavirus protection and economic recovery measures, the ministry said in a statement. The bill also covers the home purchase scheme announced last autumn and increases in health-care, family support and local government funding, it said. […]Continue reading

However, according to the budget draft submitted to parliament on Tuesday, the government seemingly ignored the suggestions of the KT and the MNB.

The government justified the planned deficit, which is much higher than the EU’s 3% cap, by stating that it will take advantage of the leeway granted by the European Commission allowing EU member states to run higher budget deficits this year, and next due to the pandemic. This in turn will allow much greater room for economic maneuvering to mitigate the negative effects of the pandemic.

The draft looks like an election-year budget ahead of the 2022 general elections due in April, although the government says that it is the budget for restarting the economy after the pandemic. In total, HUF 7,308 billion (EUR 20.3 bn) are penciled in for economic measures supporting the growth, while the planned budget is HUF 483 billion more than this year. Meanwhile, the government also plans to increase spending on family support measures, income tax cuts for earners under 25, and pension hikes, likely in an attempt to target key voting groups.

In the featured photo: Finance Minister Mihály Varga. Photo by Zsolt Szigetváry/MTI