Hungary will cut spending by around EUR 2 billion next year as the government expects economic expansion to slow in 2022. The Cabinet of Prime Minister Viktor Orbán, facing a closely fought general election next spring, is balancing between generous financial handouts to voters and a commitment to keep the budget deficit in check.
The Finance Ministry announced HUF 755 billion in expenditure cuts for 2022 earlier this month as it seeks to reduce the country’s ballooning budget deficit. The Ministry said that rescheduling state spending in the amount of HUF 755 billion will guarantee that the 2022 budget deficit goal is met. A government decision published after the announcement showed in more detail the areas from which the government is cutting funds. Among others, the spending cuts will affect the opposition-led capital and some of next year’s investments. In addition, the government decided to postpone some of 2022’s development projects and increase the central budget’s 2022 reserves. “By rescheduling some public investments, the government will save HUF 755 billion (EUR 2.04 billion) in next year’s budget, improving the deficit target from 5.9% of GDP to 4.9% of GDP,” according to a statement by the Finance Ministry. It added that this would allow for a faster reduction in the public debt ratio.
Since next year’s budget was passed by Parliament over the summer, the government made several decisions to distribute huge sums of money to families, pensioners, raise wages in several sectors, and introduce a number of tax reliefs for businesses next year. This will reduce Hungary’s budget balance for next year by more than HUF 1.5 billion. The deterioration in public finances has forced the government to implement spending reduction.
The government expects economic expansion to slow to 5.9% next year after a GDP growth of more than 6% in 2021. That is well above the forecast published by OECD, which sees GDP growth slowing to 5% in 2022. The OECD said fiscal policy will "remain expansionary" in 2022, before "gradually consolidating" in 2023.
Hungary’s 2022 budget law targets growth of 5.2% next year, but government measures will probably lift consumption, according to a ministry forecast for the 2021-2025 period. Household consumption in 2022 is likely to increase by 6.7%, up from an expected 3.6 % this year. Hungary’s economy grew by 6.4% in 2021 after a contraction of 6.6% the year after the 2008 crisis, Finance Minister Mihály Varga said in Facebook post earlier this month.
The minister noted that Hungary’s economy is in a better shape than it was after the 2008 meltdown, for a variety of structural reasons. There are 4.7 million people in employment, one million more than twelve years ago, Varga said, adding that the jobless rate declined from 12% in 2009 to 3.8% today. The personal income tax rate was reduced from 36% to 15%, while from Jan 1. tax on employment will decrease from 33.5% to 1%. The government also slashed the corporate tax rate from 20% to 9%, Varga noted. The value of investments this year came to HUF 15,000 billion as against HUF 5,500 billion in 2009, the minister noted. He went on to say that “the rebalancing of the Hungarian economy has been successful” and “…will allow Hungarian fiscal policy to return to a balanced path sooner than planned.”
Public debt held by foreigners has halved from 60% to 30%, Varga noted, adding that the proportion of foreign currency loans held by households has gone down from 67% to 0.5%.
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