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“Sober, moderate, and disciplined policies are crucial, and we must continue our focused fiscal policy this year,” stated Minister of Finance Mihály Varga. The objective is to maintain an annual average inflation rate of around five percent, as stated during the iCon economic policy conference on Saturday.
Varga emphasized that fiscal expenditures will be restrained until the inflation rate returns to a “more moderate range.” While there is a consensus that this year’s inflation rate will be significantly lower than last year, he hailed the achievement of reducing inflation from 25.7 percent in January to 5.5 percent in December. He anticipates an even better figure for January of the current year, with monetary policy playing a pivotal role in this success.
Acknowledging the challenges ahead, the minister highlighted the need to reduce the public deficit from around six percent to below three percent this year. He cautioned against achieving this goal hastily, as it could result in a growth sacrifice and increased unemployment. Although there is government discussion about extending the deficit reduction timeline to two years instead of one, a final decision has not been reached.
Mr. Varga believes a deficit of 4-4.5 percent is more realistic for the current year, with market expectations aligning with this assessment.
Addressing public debt, he pointed out notable improvements since 2010. The proportion of public debt in foreign currency has decreased from 53 percent to 26 percent, the average maturity has increased to six years, and public involvement has risen significantly, with the Hungarian population now holding 21 percent of the public debt.
Concerning the tax system, the minister asserted that Hungary maintains its status as the most competitive country in the region for foreign working capital investment per capita. The government aims to uphold this position while keeping the personal income tax rate in the single digits. He defended the current 15 percent rate as the third lowest tax burden in Europe, with potential reductions through family discounts.
Responding to a question, he clarified that adopting the euro is not an objective but a tool. He cited Slovakia as an example where the introduction of the euro did not necessarily lead to economic success.
The Ministry of Finance quoted Mr. Varga as announcing the arrival of HUF 520 billion (EUR 1.3B) in previously blocked EU funds in Hungary since December last year. However, he emphasized that the economy has continued to function effectively even without these funds. The budget has provided ample resources to sustain family benefits, protect public utility bills, and preserve pension values.
In 2024, the government anticipates receiving over HUF 2,500 billion (EUR 6.4B) in EU funds.
