This is why Hungary incurred a HUF 35 bn budget gap in April

What happened in April?

The HUF 35 bn general government shortfall was the result of a HUF 79.4 bn gap at the central state budget, a HUF 8.5 bn surplus at extra-budgetary funds and a HUF 35.9 bn surplus at social security funds, the ministry said.

Central budget revenues came in HUF 130 bn lower than in the base period, which was the consequence of a significant decline in consumption taxes, which amounted to HUF 290 bn, a little more than half of HUF 505 bn collected in April 2012. VAT revenues totalled HUF 199 bn in April, against HUF 421 bn a year earlier. The ministry said this can be attributed to the larger volume of refunds. Last year, the cabinet raised the deadline on refunds to 75 days from 45 days previously, which was positive for the cash flow-based budget last year (as refunds were put off), but the same measure is detrimental for the budget this year.

The Economy Ministry has also made some changes to the structure of the report. As opposed to the earlier reports, the commentary quotes cumulative revenue and expenditure data for the first four months, rather than stand-alone figures for the reported month. A month ago the structure was still different.

In April, excise tax revenues came in at HUF 73 bn, down from HUF 82 bn a year earlier.

It is also clear by now that the consumption taxes cannot make up for the revenues lost this way. The telecom tax brought HUF 3.5 bn to state coffers in April, whereas the financial transaction tax generated only HUF 11.278 bn revenues. The accumulated balance of HUF 38.8 bn is not even half of how much should have been collected by end-April (HUF 82 bn).Economic operators paid HUF 106 bn to state coffers, up HUF 12 bn yr/yr, but revenues from the simplified entrepreneurial tax (SET or EVA), the mining fee and the gaming tax decreased. The ministry said the drop in mining fee revenues came about primarily due to the price cap on natural gas, the drop in the price of crude on the world market and the 10% reduction to retail energy tariffs.

Payments by households amounted to HUF 143 bn in April this year vs. HUF 129 bn a year earlier.

Expenditures amounted to HUF 875 bn in April vs. HUF 641 in the base period.

January-April expenditures jumped HUF 455 bn yr/yr, primarily over larger expenditures at budgetary organs and chapter managed appropriations that was related to a change in their institutional structures.

The latest figures underpin that the biggest risk is the financial transaction tax target. FTT revenues reached HUF 38.8 bn by end-April, which corresponds to 12.9% of the full-year target of HUF 301 bn. By the end of the fourth month some HUF 82 bn worth of FTT should have been collected, assuming an even distribution throughout the year, i.e. the backlog is HUF 43 bn so far. The cabinet expects the target to be undershot by some HUF 80 bn in 2013.

Péter Banai, deputy state secretary at the Economy Ministry responded to Portfolio.hu’s question in the online press conference that “in view of the available data the ministry does not believe a meaningful modification to the expected revenue shortfall announced in the Convergence Programme would be justified."

What’s next?

The detailed budget figures for April do not put the crimp in this year’s public finance process. The cabinet’s latest decision to freeze spending worth HUF 92 bn has made sure of that. The next key date for the country is a meeting by the European Commission’s College a week from now where the body is to take a decision on the excessive deficit procedure (EDP) against Hungary. To our question in this respect Banai responded that in view of the fiscal successes of the past few years there is a realistic chance of the EC abrogating the EDP for Hungary this year. “The latest favourable GDP data may indirectly contribute to a positive decision, given it reaffirms the government’s macroeconomic and budgetary prognoses," he added.

• Tags:
• deficit,
• economy,
• budget,
• financial transaction tax,
• ftt