The Hungarian government argues that next year’s budget bill, submitted earlier this week, is aimed at relaunching the economy. However, the bill has come under heavy fire from the Fiscal Council, the National Bank of Hungary and opposition parties for being an election-year budget designed to support key voting groups.
Hungary’s 2022 budget targets economic growth of 5.2%, a deficit target of 5.9% of GDP and public debt of 79.3%, Finance Minister Mihály Varga said when presenting the budget bill to Parliament this week. The minister stressed that the budget was designed to relaunch the country’s economy battered by the pandemic as well as support families and provide tax exemptions for earners under 25, while further reducing the tax burden on employers and supporting investments that create jobs.
The government intends to spend HUF 7,308 billion (EUR 20.3bn) on restarting the economy, which represents the biggest state-run economic program in modern Hungarian history, Varga said. A HUF 233-billion reserve fund has been set aside in the budget to manage risk, the minister noted.
The Cabinet’s plan to reduce the budget deficit to 5.9% of the GDP from an expected shortfall of 7.5% in 2021 represents an insufficient reduction, according to Hungary’s Fiscal Council, a body responsible for advising the government on budget matters. After reviewing the draft budget earlier this month, the Council argued that both the budget deficit and public debt levels should be reduced more. The panel’s warning came as a surprise because in recent years the Fiscal Council always found budget goals realistic.
The National Bank of Hungary (MNB) agreed with the Fiscal Council's assessment that the economic environment would justify a more considerable narrowing of the budget shortfall.
According to the budget bill submitted to Parliament, policy makers appear to have ignored the suggestions of the Fiscal Council and the MNB.
The government intends to 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. As a result, there will be more room for economic maneuvering to avoid the worst effects of the pandemic. The EU normally allows member states to run a budget deficit of no more than 3% of GDP.
The draft looks like an election-year budget ahead of the 2022 general elections due in April and reflects the government’s “botched economic policy,” an opposition LMP politician said. Deputy group leader Antal Csárdi noted that Fidesz continued “to favor its cronies” instead of helping restart small and medium-sized enterprises.
LMP proposes a progressive taxation system, which would favor those with a smaller paycheck and increase the tax burden of those earning over HUF 700,000 forints a month, Csárdi said.
Next year’s budget will make the rich even richer and leave the needy in the lurch, Csárdi said, adding that the nation’s economy would slide into recession without EU development funds. EU funds will amount to HUF 3,050 billion (EUR 8.5bn) in 2022, accounting for over 10% of the budget, Csárdi said. “While the government calculates with 5.2% growth, the EU funds alone generate a rate of 5.3%,” the politician said.
Sándor Burány of opposition party Párbeszéd slammed the 2022 budget saying that it will benefit the “usual contractors” instead of the Hungarian people. Burány added that it was pointless to submit the budget so early in the year given the uncertainties brought about the pandemic.
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