Windfall taxes introduced in 2022 for a temporary two-year period will remain in place next year but the burden on banks, pharmaceutical companies and energy suppliers will halved, while that of retailers will not change, Hungarian Finance Minister Mihaly Varga said on May 30, presenting the 2024 draft budget to parliament.
Details of the tax changes for 2024 will be revealed next week, Varga added. Parliament is expected to vote on the budget bill on July 7.
The bill targets a 2.9%-of-GDP fiscal deficit and a year-end state debt-to-GDP ratio of 66.7%, down from an anticipated 69.7% at end-2023. It assumes average annual inflation of 6% and a growth of 4%. The latter is well above the 3.3% market consensus, which could jeopardise the ambitious deficit targets, analysts noted.
EU member states have to keep their 2024 budget deficits below 3% of GDP as the suspension of the Stability and Growth pact will be lifted from the end of this year and excessive deficit procedures can be imposed from spring 2024.
The government is planning to boost defence spending by 50% to HUF1.3 trillion, that would bring per GDP ratio to over 2%, while the central budget support to the Utility Protection Fund to cover retail energy subsidy schemes will be halved to HUF489bn as energy prices have considerably eased pressure on the country’s finances. Hungary’s import 80-90% of its energy needs and the spike in energy prices lifted the current account deficit to 8.1% of GDP last year.
Overall, energy subsidies will come to HUF2.5 trillion in 2024. Windfall profit taxes from companies in the energy, mining, telecommunications, airline and pharmaceutical sectors would cover the rest of the fund's expenditures.
Expenditures on state investments are targeted at HUF555bn in the bill, down from HUF580bn in the 2023 budget act.
The bill targets HUF3.8 trillion spending on European Union-funded developments. The government has been prefinancing EU projects as transfers have been withheld until Hungary met 27 supermilestones. Government officials are acknowledging that the first payments are unlikely to be transferred before the end of 2023.
Expenditures on debt servicing are targeted at HUF3.1 trillion, a sharp increase from HUF2.5 trillion in 2023 and exceeding the Hungarian National Bank’s targets.
In the reasoning for the bill, submitted by Varga, the government called next year's budget a"defence budget" that addresses the challenges posed by "the negative consequences of the unstable global economic environment, Brussels' failed sanctions policy and the prolonged war", the communication mantra used by the government to shift blame for the deteriorating economic situation.
The 2024 budget bill calculates with known risks, of which the biggest is the drawn out war, he added.
The government argued that early adoption of the budget could provide companies and state bodies a compass for planning but data shows that deviation from budget targets increases with early adoption.
The Fiscal Council last week pointed to risks in the budget. In its assessment it said that deficit targets could be reached only in best case scenarios. The further delay in EU sanctions, slower economic growth at Hungary’s export markets or the prolongation of the war could joeoparidse revenue targets.
The Fiscal Council also warned that the budget draft does not make provisions for the expected loss of the MNB, which could be in the hundreds of billions of forints. The government amended the Central Bank Act in December, which relaxed the rules on potential compensation for losses and extended the period from eight days to five years, paid in equal parts.