Fiscal policy on the move

HUNGARY - In Brief 13 Jul 2022 by Istvan Racz

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Well, it cannot be justly said that the government is not moving quickly enough once it really feels the need to do so. Most lately, the following series of action took place: 1. Two days ago, the cabinet detailed in a decree its plans for this year's HUF568bn (0.9% of GDP) reduction of the government's current spending. This is meant to be part of a HUF1350bn plan (2.2% of GDP) to cut total spending, the rest representing cutbacks of fixed investment. The total size of the fiscal adjustment plan for 2022 is HUF2250bn or 3.6% of GDP. 2. Yesterday, parliament voted to amend legal rules on a simplified and cheap taxation scheme (called KATA), so far maintained for some 450k individual small entrepreneurs, essentially killing the scheme for an estimated 350k participants. The extra tax revenue stemming from this change may be around 0.5% of GDP. Clearly, the impact of this measure on growth will be negative (minus 0.2-0.3% GDP growth). This measure was not part of the original plan to raise extra revenue for the budget; the government cabinet appears to believe that additional buffers in the budget would be useful, in view of the risks associated with Europe's shaky energy situation and the uncertainty around EU funds. 3. Most importantly, the cabinet decided today that from August, the nine-year old system of fixed gas and electricity prices for households will undergo the first major change since its introduction: fixed prices - one seventh of the market-based price for electricity and one eighth for gas - will only hold up to the average consumption of households, and the market price will have to be paid by households for any excess over the average consumption. This ...