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Hungarian Government Submits 2018 Budget Bill To Parliament

By Tamás Székely // 2017.05.03.

The 2018 budget bill is one for “people who earn their living from work”, Hungarian economy minister Mihály Varga said, introducing the bill in parliament prior to its official submission.

The targets of the budget are unchanged from this year’s: achieving full employment, maintaining economic growth and boosting security, Varga said. The final vote on the bill is expected on June 15, said House Speaker László Kövér after receiving the budget bill proposal from Varga (pictured above).

The budget targets 4.3% GDP growth, up from 4.1% projected for 2017. It assumes an inflation rate of 3%. The small business tax will be reduced by one percentage point to 13%. Tax benefits for families with two children will rise, leaving them with an additional 420,000 forints a year in disposable income on average. VAT rates on catering, fish and internet services will be reduced to 5%.

The budget allocates 81 billion forints more for education, 287 billion forints more for pensions and social services, 83 billion forints more for the police and security and 205 billion forints more for economic development, Varga said. The bill targets revenue of 18,740.7 billion forints and expenditures of 20,101.4 billion forints, leaving a deficit of 1,360.7 billion forints. The deficit is over the 1,166.4 billion forints gap targeted for 2017. The 2018 deficit target as a percentage of GDP is 2.4%, calculated with European Union accounting rules.

Facts and figures

The 2018 budget bill targets corporate tax revenue of 362.6 billion forints, down 51 percent from the target in the 2017 budget. Revenue from the bank levy is set to fall by 24 percent to 50.4 billion forints next year. Revenue from the financial transactions duty is set to stagnate at 204.7 billion forints.

The budget bill targets VAT revenue of 3,090.7 billion forints, up by 25 percent from the 2017 target. Revenue from excise tax is targeted at 1,099.3 billion forints, 6 percent over the respective target for this year.

Personal income tax revenue is targeted at 2,090.2 billion forints, almost 17 percent over the target for this year. Revenue from retail duties and fees is seen climbing by 22 percent to 188.6 billion forints, according to the bill.

Revenue from kilometre-based commercial road tolls is 15 percent higher, at 177.7 billion forints, in the 2018 budget bill.

The 2018 budget bill shows payroll costs of Hungary’s state school manager are targeted at 419.6 billion forints, 5 percent over the target for this year. Payroll costs at universities and colleges will rise by 14 percent to 222.3 billion forints and payroll costs for the human resource ministry’s social and child services is set to climb 18 percent to 81.6 billion forints. Payroll costs of the National Tax and Customs Authority (NAV) will rise 28 percent to 99.4 billion forints.

Wages in the private sector are also expected to climb next year, lifted by an agreement reached late last year on raising the minimum wage. The agreement raised the minimum wage for unskilled workers by 15 percent and the wage for skilled workers by 25 percent from this year. The increase was paired with a 5-percentage-point drop in the payroll tax. Next year, the minimum wage is set to rise by 8 percent for unskilled workers and 12 percent for skilled ones, while the payroll tax will fall by a further two percentage points.

The budget bill’s allocation for the fostered work scheme, which the government is gradually winding down, is 31 percent lower at 206.7 billion forints.

In the budget chapter on the Prime Minister’s Office, the bill sets aside reserves of 110 billion forints for central contingency measures and puts 60 billion forints in the National Protection Fund, unchanged from the allocations in this year’s budget.

The allocation in the chapter for a capital raise in the project company for the upgrade of the Paks nuclear power plant is 106.7 billion forints and 150 billion forints is earmarked for developments in Hungary’s biggest cities under the Modern Cities programme.

The bill shows a 39.9 billion forint allocation for the preparation and implementation of the Liget Budapest Project, an overhaul of the capital’s City Park.

The prime minister’s office and its related institutions will altogether get 846 billion forints. The budget chapter on the office targets over 51 billion forints in revenues. The budget earmarks 30 billion forints for the prime minister’s office alone and targets operating revenue of 6.6 billion forints.

The bill allocates 220.1 billion forints for the Ministry of Foreign Affairs and Trade, targeting 6.75 billion forints in own revenue. A total of 71.94 billion forints will go towards funding Hungary’s representative offices. The budget targets 6.4 billion forints in operating revenue in this area. As regards the management of the ministry, the bill shows operating revenue of 187.8 billion forints and spending of 11 billion forints.

In health-care spending, funding for general practitioners’ surgeries will rise by 12 billion forints to 124 billion forints. The government will spend 2,315 billion forints on the health insurance fund compared with 2,059 billion forints in 2017.

Spending on local governments will rise by over 54 billion forints from this year’s 641 billion forints to 695.5 billion forints.

The police and security forces that fall under the jurisdiction of the interior ministry will see a significant budget increase. The police forces will get 218 billion forints and the TEK counter-terrorism force 13 billion forints for personnel expenses. The latter will be given 2.3 billion forints for material expenditures next year.

The defence budget will increase by 77 billion forints to 427 billion forints, or more than 1 percent of GDP. In 2012, the government adopted a resolution in which it pledged to increase defence spending by 0.1 percent of GDP from 2016.

Pension funding for women who choose to retire early will increase to nearly 260 billion forints from 233 billion forints in 2017. Spending on old-age pensions will rise from this year’s 2,501 billion forints to 2,669 billion forints next year. Orphan support will increase slightly from 31 billion forints to 32.5 billion and funding for widow’s pensions will be 348 billion forints compared with 334 billion forints in 2017.

Opposition reactions

Hungarian opposition parties slammed the 2018 draft budget submitted to parliament by the economy minister. Radical nationalist Jobbik called the bill an election budget and said the family benefits proposed in the draft would only favour the prime minister and those close to him. Dániel Z Kárpát, the party’s deputy leader, said that the budget would not improve the economy or make the lives of Hungarian families any easier. He criticised the year-end “premium” pencilled in for pensioners saying that because of previously underestimated inflation levels, pensioners were only now going to get what they would already have been entitled to. He also criticised the 27% VAT rate, the “exotic taxes” that he said the budget keeps in place and what he said was the budget’s failure to address the situation of troubled forex borrowers.

Green opposition LMP said prior to the bill’s submission that the budget would serve the interests of oligarchs and large multinationals over those of Hungarian workers and businesses. Erzsébet Schmuck, the party’s deputy group leader, cited advance information available about the budget and criticised the “unfair and unsuccessful” flat rate tax system being maintained next year. She told a press conference that family tax allowances were to increase by only 15 billion forints (EUR 48m) and at the same time, the corporate tax cut which benefits mostly multinationals would pose a 150 billion forint burden on the budget. She welcomed the reduced VAT on fish and internet services but added that these would not really make people’s lives better.

via and MTI