Fiscal policy and politics: new developments

HUNGARY - In Brief 29 Apr 2017 by Istvan Racz

---

Neither of the government's 2017 convergence report, which is due to be delivered to the EU by end-April, nor the draft budget plan for 2018, expected to go to parliament within days, have been published so far. But at least the fiscal deficit target for 2018 was announced at 2.4% of GDP, unchanged from this year's target and up from the actual 1.7% of GDP recorded in 2016.Importantly, the newly announced deficit target is substantially above the 0.8% of GDP level that Hungary should deliver in 2018 to fully meet existing EU fiscal rules, and it is also higher than the 1.8% of GDP deficit that the government predicted / promised for the same year in its previous convergence program, released in April 2016. What it is sufficient for, though, is to secure a further marginal decrease of the government debt to GDP ratio in 2018, from the actual 74.1% at end-2016, and the likely 73-73.5% at end-2017, to something between 72-73%. It is most likely that the deficit target was indeed set to make that further small reduction of the debt ratio possible.Needless to say, the EU Commission is very likely to issue a critical statement on this policy slippage at some point over the next few months. However, this is quite unlikely to make the government's positions much worse in Brussels, given that those positions appear already rather bad in these days. At present, the EU is in the process to assess the state of affairs in domestic politics in Hungary, in view of PM Orbán's most recent measures against independent NGOs, including the Central European University, and his 'national consultation' letter sent to all domestic adult citizens, which various EU representatives summarily des...