In line with the preliminary data release, Hungary had HUF 80.2 billion budget surplus in July, excluding local government budgets. The high July surplus, something not witnessed for several years, is the combined result of poor revenue performance and expenditure kept within limits. Statistical factors have also played a role, as July 2011 was the month when the impact of Hungary's MOL share purchases appeared in the budget.
The first 7 months' aggregate figures show the realization rate of budgeted revenues and expenditures alike was lower than in 2011. One area where revenues fall significantly below the amount projected for the first 7 months is (tax, etc.) revenues due to be paid by the private sector.
What happened in July?
Hungary's July budget surplus totaled HUF 80.2 billion in July 2012, the highest July data in 4 years, the Economy Ministry reported. (It should be noted that the July 2011 report was aggravated by the negative impact of Hungary's MOL share purchases.) The headline figure is the combined result of sufficits in all 3 major components of the budget: the central budget, social security funds and dedicated government funds had HUF 49.7 billion, HUF 22.3 billion and HUF 8.2 billion surplus, respectively. The HUF 80.2 billion aggregate surplus compares with HUF 459.9 billion deficit a year earlier.
A closer look at the July data reveals that the revenue side was salvaged by the revenues of governmental organizations and ministry budget revenues, along with personal tax payments, since both business and consumption taxes alike fell significantly. Meanwhile, expenditure has been successfully kept under control.
Central budget revenues totaled HUF 802 billion in July, 8% more than the corresponding HUF 737 billion a year earlier. The increase is due to significantly better realization of revenues budgeted in governmental organization and ministry budgets compared with the 2011 rate (HUF 207 billion as opposed to 117 billion last year). Personal tax revenues also exceeded the July 2011 amount. These were sufficient to compensate a decline in all other major types of tax.
1. At HUF 112 billion, corporate taxpayers paid 20% less in taxes, due to the following factors: Corporate tax refunds jumped to HUF 30 billion from July 2011's HUF 12 billion. "The growth in refund payments is the result of taxpayers claiming refunds of corpoate tax paid in 2011 at a faster pace than expected," the Economy Ministry said. What boosted refunds were the investment and development tax brakes available until 2011, as well as corporate tax breaks related to sports sponsorship, Deputy State Secretary Péter Banai added as further details in Wednesday's online press conference. On the "energy suppliers' income tax" line, the Tax Office debited HUF 9 billion to taxpayers' accounts, which compares with HUF 33 billion. "The negative July balance is the result of refunds claimed in the May tax return," the ministry commented. Simplified entrepreneurial tax (EVA) revenue fell HUF 4 billion to HUF 32 billion. "The decline was the combined result of two different effects: fewer taxpayers and a tax hike from 30% to 37% as of January 1, 2012," according to the Economy Ministry. Bank tax revenue totaled a negative HUF 1.3 billion, which compares with HUF 8 billion surplus in July 2011. The significant outflow of funds is due to banks' losses on the mortgage payoff scheme. Meanwhil, revenues from gambling tax rose 17% and other centralized revenues grew 47%. The first is due to a tax hike, the latter is the result of a new environmental tax law which "modified tax rates, restricted tax breaks, and re-defined taxpayers to which the tax is applicable," according to the ministry.
2. Consumption tax revenue fell 10% to HUF 296 billion. VAT revenue totaled HUF 209 billion in July, almost 20% less than a year earlier. Gross payments rose HUF 66.9 billion to HUF 425.2 billion, while refunds jumped HUF 111.4 billion to HUF 216.1 billion. "Declining revenue is the result of large-scale refund claims by taxpayers," the ministry commented. There is no extraordinary reason for the large-scale refund claims; "the amount of refunds was determined by the normal course of business affairs during the year," Banai said. However, excise tax revenue rose 20% compared with July 2011, thanks to increased excise tax revenues from the sale of tobacco products. The reason for the increase is another tax hike on tobacco products in July 2012.
3. Contrary to companies, July saw an increase in individual taxpayers' payments, from HUF 134 billion to HUF 152 billion year-on-year. "Higher realization is attributable to the impacts of a transformed tax regime and higher wages as the "expected" wage threshold was raised," the ministry said, referring to the termination of a tax break in the lowest income brackets.
4. State-run organizations realized HUF 117.5 billion revenue, nearly 1.7 times the amount in July last year. Of the HUF 47 bilion increase, HUF 23 billion was the result of higher payments by the National Healthcare Fund to hospitals. The revenues of organizations formerly run by local governments and more recently taken into "state custody" are also listed here as a result of the changes.
5. Ministry budgets reported HUF 89.9 billion aggregate revenue in July 2012, or 190.3% of the July 2011 amount. The growth is primarily due to an increase in EU funds accessed as part of various development programs.
6. A jump in revenues from state assets has also helped towards a significant July surplus in the budget. Of the HUF 12.2 billion total, HUF 10 billion resulted from MOL dividends, Banai said.
Hungary's budget expenditure totaled HUF 752 billion in July, 32% less than a year ago. The decline is almost exclusively due to the fact that spending related to state assets fell HUF 500 billion compared with July 2011 when the fiscal impact of Hungary's MOL stock acquisitions materialized in the budget. Nearly all the rest of entries on the expenditure side increased over the 12 months to July.
1. One-off and normative subsidy expenditure rose 7% year-on-year.
2. Expenditure on housing subsidies increased nearly fourfold.
3. Spending from the family and social policy fund rose 33% year-on-year.
4. Governmental organizations and ministries spent 9% more than in July 2011.
5. On the other hand, consumer price subsidies totaled 15% less than last year.
Debt service totaled HUF 63.4 billion in July, HUF 2 billion less than a year earlier. Interest income came to HUF 10.7 billion, up HUF 2.8 billion year-on-year. At HUF 52.7 billion, net debt service was HUF 4.8 billion less than in July 2011.
Where things stand year-to-date
The HUF 80.2 billion July surplus reduced the aggregate year-to-date deficit to HUF 437 billion, which is less than recent years' corresponding figures.
According to the report, aggregate budget deficit stood at 75% of the HUF 576 billion target set for the entire year 2012, which is also an improvement on previous years. However, this does not mean the government can now sit back and relax; strict fiscal management remains necessary as it is clearly visible that revenues are falling behind targets on several lines.
The risks that have emerged as a result of a legislative nod to the latest budget amendment proposal could be effectively managed by freezing reserves. Commenting on this subject at Wednesday's Economy Ministry press conference, Deputy State Secretary Péter Banai said "the 2012 Budget Act stipulates that the HUF 320 billion reserve created to counterweigh risks to government financing can be accessed no sooner than October, provided that the 2012 ESA deficit does not exceed 2.5% of GDP. Therefore, no decision could be, or has been made on the designated use of reserves."
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