Hungary’s government revised its 3.9% deficit target to 5.2% on October 3. The statement issued by the Economic Development Ministry came just before the release of the quarterly data by the KSH on central government debt.
The government sector deficit was HUF570bn (€1.5bn) in Q2, or 3.1% and HUF2.3 trillion in the first half, equal to 6.3% of GDP during the period.
The ministry noted that the new target is still 1pp lower than last year's 6.2% level, but did not say that it is 1.3pp or HUF900bn above its initial target.
The National Bank in its latest Inflation Report projected a 5.2% deficit for the year, and analysts were forecasting a deficit overshoot of 1.5-2pp.
The ministry pointed to the impact of the protracted war in Ukraine and Brussels' sanctions policies on the unfavourable state of the global economy and the energy crisis but said the budget would ensure that the value of pensions was preserved and family subsidies, as well as regulated utility prices for households, were maintained, even amid the extraordinary expenditures.
The international situation presents an "extraordinary burden" for the Hungarian budget, the ministry said, adding that, in addition to increased spending on the regulated utility prices scheme, the country's defence expenditures would reach 2% of GDP in 2023.
Furthermore, disbursement of EU support rightfully due to Hungary by the European Commission would expand the fiscal leeway of the budget," the ministry said
Speaking at a conference earlier this week, Nagy said that restoring the purchasing power of wages is the utmost priority as higher real wages will feed through the economy by spurring consumption, stimulating the industrial sectors producing for the domestic market that will generate higher tax revenues and eventually lead to higher growth.
He attributed the sharp rise in the budget deficit to the country’s consumption-based tax system, as the share of VAT revenues within total budget proceeds is one of the highest in the EU. VAT revenues have missed targets by HUF900-950bn so far this year, he added.
In the press release on Tuesday, the ministry said Hungary’s economy is stable and expected to return to a growth path by the end of this year. The government will continue to improve fiscal indicators in the future and maintain the declining deficit and debt trajectory year after year. Hungary's state debt is consistently about 10% lower than the EU average, it added.