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Although the economy is still not booming and growth is only picking up very slowly due to weak external demand, the recovery in domestic consumption is increasingly reflected in the budget figures.
VAT payments, which previously left a gigantic HUF 1,000 billion (1 EUR = 400 HUF) hole in the budget, are now close to target, with HUF 461 billion more coming in last May than a year earlier. In other words, even weaker growth is not upsetting the budget for the time being, and more importantly, the recovery of consumption-type taxes is solving one of the biggest problems of the Hungarian budget.
This year, the government expects VAT revenues of HUF 8,277 billion (cc. EUR 20 billion), of which HUF 3,311 billion has flowed into the state coffers in five months, representing 40% of the target. Although this is HUF 137 billion less than last year, it is incomparably better than the 33 percent fulfillment rate in May 2024.
In addition, VAT payments were HUF 461 billion higher than in May.
In the end, Minister for National Economy Márton Nagy was right when he said at a press event earlier that there was no need to touch the budget because the problem in the economy was weak external demand, not domestic consumption or falling VAT revenues.
Even so, consumption remained the most important driver of economic growth, although its momentum slowed from around five percent last year to close to four percent, which was to be expected given the more modest wage growth compared to last year. This has a positive impact on the budget, which is heavily dependent on VAT revenues.
The government has recently announced a number of expensive family support measures. Photo: MTI/Miniszterelnöki Kommunikációs Fõosztály/Fischer Zoltán
The budget is in dire need of the extra revenue. At the beginning of the year, Prime Minister Viktor Orbán announced a series of family policy measures that will have a significant impact on the state coffers: income tax exemption for mothers with three children amounts to HUF 200 billion annually, while mothers under 40 with two children represent a loss of HUF 120 billion, and doubling the family tax allowance could leave working parents with HUF 580 billion next year.
According to Molnár, in order for the budget to bear the loss, economic growth is essential, as it has a positive effect on revenues, which can then be used to cover the subsidies. “Based on the announcements made so far, we expect the budget deficit to be around 4.3 percent of GDP this year, which means it could fall further compared to last year, while we expect a deficit of 3.8 percent of GDP next year. However, this is conditional on fiscal policy remaining disciplined and restraining spending as much as possible,” the analyst noted.
Via VG; Featured image: Unsplash