Unexpectedly low fiscal deficit target set for 2015

HUNGARY - In Brief 28 Oct 2014 by Istvan Racz

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Fact: The Fiscal Council released its preliminary assessment of the government's budget draft for next year. The draft itself is not publicly known yet, but from the Council's statement, it became clear that the 2015 general government deficit target has been set at 2.4% of GDP, following the 2.9% target set for 2014. Previously, the government announced an intended 2.8% deficit target for next year, in its Convergence Report of April 2014. The draft also expects the government debt ratio to fall from 76.3% at end-2014 to 75.4% at end-2015. The Council gave a list of the key risks they see in the budget draft, of which the most important ones are the following: - The HUF 40bn (0.13% of GDP) revenue buffer secured by the plan seems inadequate; - There is significant risk at indirect taxes, as the government counts on a marked improvement of tax collection efficiency, which may or may not materialise; - There is material downside risk in inflation, which is a threat for the feasibility of fiscal revenue targets; - Some measures mentioned in the draft, particularly those affecting the spending side, are not explained in appropriate detail; - No details are available on an expected HUF 169bn (0.55% of GDP) revenue from the government's equity holdings; - The Council did not receive appropriate details on the expected fiscal impact of the upcoming compensation payments by banks to households. Separately, the government announced its intention to raise the salaries for army and police staff substantially in July 2015, which requires HUF 20bn (0.07% of GDP). A similar amount is to be collected from a new indirect tax on data turnover through the internet. A serious public pro...