The government cabinet has approved its budget proposal for 2023

HUNGARY - In Brief 06 Jun 2022 by Istvan Racz

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In Hungary, the annual budget plan goes to parliament normally in June. Following this schedule, the cabinet has just released its budget proposal for 2023. According to this, the general government deficit would be limited to 3.5% of GDP, reduced from 4.9% targeted this year. In 2021, the actual deficit was 6.8% of GDP. The gross debt ratio would be reduced to 73.1% by end-2023, from the 76.1% expected for end-2022. At end-2021, the ratio was 76.8% of GDP. All this looks great, but access to EU funds will be absolutely crucial. The plan is aiming at spending exactly 5% of GDP under EU-sponsored developments programs in 2023. Against that, it expects cash reimbursements of 3% of GDP, and a net increase in claims against the EU - amounts to be reimbursed later on - of 2% of GDP. Should Hungary not be able to access EU funds, due to an adverse conclusion of the ongoing rule-of-law procedure, none of the latter two would be possible, and the deficit would grow to 8.5% of GDP. Of course, a penalty could be partial in principle, so next year's fiscal deficit could be anywhere between 3.5-8.5% of GDP on that basis. The good news is that current-year fiscal adjustment is proceeding well. All the required law has been issued on the HUF900bn (1.45% of GDP) extra tax the government intends to collect. This amount should come together in the form of extraordinary sectoral taxes, imposed on banking, insurance, energy, retail trade, medicines, air transportation, media and telecommunications, etc. The political explanation is that the government is taxing away windfall profits (called "extraprofit") in localspeak, but the fact of the matter is that these are not profit taxes, and i...