More on Mr. Orbán's fiscal trick

HUNGARY - In Brief 03 Mar 2017 by Istvan Racz

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Fixed investment growth in Q4 2016 was a rather unimpressive +0.4% qoq, -24.1% yoy, implying exactly a 20% real-terms drop in the whole of last year. Incoming net EU transfers, by BOP, reached only 2.1% of GDP in 2016, sharply down from 6% of GDP in 2015. Finally, bank deposits held by non-financial enterprises rose by the equivalent of 2.1% of GDP in Q4 2016.What do all these figures tell us? Well, quite a lot, we think. They strongly suggest that the massive payouts made out of the central government budget in December indeed represented, to a great extent, a massive set-aside of funds for 2017. The reader is kindly reminded that the government paid out a total of 6% of GDP equivalent of funds to final beneficiaries - mainly local governments and non-financial companies - under EU programs last year, and almost exactly half of that was paid out in Q4. Most of that money was not spent on actual fixed investment at that time; there is clearly no track of the corresponding demand appearing in Q4 fixed investment statistics. There was not a corresponding massive flow of invoices returned to the government, as one can see from the fact that the generation of transfer (reimbursement) claims on the EU remained quite weak. But there appeared signs of substantial money hoarding by non-financial enterprises - much less at local governments, suggesting that the latter passed the funds on to their contractors at an early stage.So what must have happened in fact was that the bulk of the funds under EU programs was paid out in late 2016 as advances. These will appear in the government's books as 2016 spending, but they do not qualify to be accounted for as a corresponding revenue ...