General government budget was indeed almost balanced in Q1-Q3

HUNGARY - In Brief 19 Nov 2015 by Istvan Racz

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Earlier this week, we said in our November report that based on cash budget data, the central government budget must have been roughly balanced in ESA2010 terms in January-October, implying much tighter fiscal policy so far this year than required by the 2.4% of GDP annual deficit target. Since then, the MNB has published its preliminary financial accounts for the government sector. According to those, the whole government sector indeed ran a deficit of merely 0.3% of GDP in Q1-Q3, judged by its net financing need at least. This was followed, according to the monthly cash data again, by a seasonally justified surplus in October (the quarterly collection of VAT fell on the latter month). Given that Q4 as a whole tends to be a period with relatively strong budget balances on seasonal basis (e.g. most of annual corporate taxes are to be paid by the end of this quarter), the case may very well be that the government ends up with an unexpected balanced budget for the whole of 2015, or something very close to that. Unless they suddenly start throwing money out of the budget on a large scale, of course. Given that much of this strength came from very tight expenditure management, save for EU-sponsored development projects, the question is if it is rational to apply such a tight fiscal policy at a time when GDP growth is slowing down and the MNB is loosening its own policies? We believe the answer is yes, and the reason is not necessarily the well-known problem about the end-year government debt ratio, which we have pointed out a number of times recently. Increasingly, we have the impression that the main reason may be the government's desire to evening out GDP growth between ...