A balanced budget in 2017?

HUNGARY - In Brief 17 Feb 2016 by Istvan Racz

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Economy minister Varga said yesterday that 'I hope the Prime Minister's expectation that a zero percent budget is prepared can be met for 2017', adding his colleagues in the ministry are just working on a plan of this sort. From the context it was absolutely clear that by speaking of a zero percent budget he meant a budget plan with zero deficit. Even though this did not sound as a 100% firm commitment on Mr. Varga's part, his announcement was still revolutionary new. So far, official talk has been going on a fiscal deficit of 1.6-1.7% of GDP for 2017, down from a 2% target set for 2016. By the way, financial accounts data published by the MNB this morning suggests that the net financing need of the general government was only 1.8% of GDP in 2015, slightly below the 2% estimated ESA2010 government deficit. The two concepts are not identical of course, but for methodological reasons, the deficit cannot fall very far away from the net financing need number. The deficit target for 2015 was 2.4% of GDP, as is well known for our readers. So in principle, cutting the deficit to zero in a matter of two years could be possible, even though not easy. But would it make sense at all? Well, Mr. Varga's statement in itself certainly makes sense if one considers that the government would very much like to get a credit upgrade from Fitch Ratings in late May, which explains to a great extent why the government is so much interested in increasing fiscal tightness. Otherwise, the rationale behind such a plan is questionable, because of the expected slowdown of GDP growth, due to the EU-transfer shock, this year, and the start of the campaign for the parliamentary election of 2018 next y...