Things that make Hungary's 2015 budget plan extraordinary

2015 is an extraordinary year

The 2015 budget will be extraordinary from at least two aspects:

• This was to be the first time 15 October was the deadline to submit the budget bill instead of 30 September;
• The new deadline, however, only would have been respected because there were parliamentary elections this year and under new regulations the budget bill needs to be submitted only by 31 October.

This means the cabinet gave itself one more month this year to create the budget bill. Frankly, we have no idea where the new deadline comes from, i.e. we have found no explanation that would make sense. The only “rationale" provided in the law amendment proposal was that delay is necessary because of the local governments which have until 31 October to submit their own budget plans for the following year.

Not so urgent now

According to June plans, the government was to deliver the draft budget to the Fiscal Council by 30 September and - after making the recommended modifications - it will submit the bill to Parliament on 15 October. We have learned, however, that the Fiscal Council will receive the draft only after 15 October from the Economy Ministry.

We should keep our eyes peeled for these

Whereas we will have to wait a few more weeks for the budget bill (and the 2015 tax laws), we were able to collect a few pieces of the puzzle from government officials’ comments over the past few weeks.

1. The cabinet can double the tax benefit of families with two children. This could entail a HUF 55-60 bn revenue loss for the budget.

2. There may be changes made to the special tax on the financial sector and the financial transaction tax. The possible revision of the bank tax was mentioned several times also by Economy Minister Mihály Varga, arguing that lending needs to be given a boost.

3. János Lázár, the PM’s cabinet chief and a government spokesperson both implied in September a revision of the advertising tax.4. The government will reportedly favour car manufacturers by an across-the-board 10% corporate income tax (vs. two rates currently, 19% and 10%).

5. Military spending related to Hungary’s NATO membership will rise next year.

6. The expenditure side of the budget will be fundamentally determined next year by the cabinet’s intention to gradually reduce the redistribution rate (to 45% by 2017, according to the Convergence Programme. This does not require a nominal cut in spending, but it does mean that the cabinet needs to apply strict spending control.

Key questions to be answered

We should also keep an eye on the following issues regarding the 2015 budget.

1. On what updated macroeconomic path will the cabinet base its plans? The key items to watch here are the GDP and inflation projections. The macro data in the Convergence Programme submitted to Brussels in the spring will certainly be reviewed. In that 2015 GDP growth was seen at 2.5%.

2. What budget deficit target will the government set and what debt-to-GDP ratio will it target? In the Convergence Programme it pencilled in 2.8% of GDP gap for next year. It is also possible that in order to secure a reduction in the debt ratio the cabinet will revise this goal downwardly, also to avoid the European Commission reopening the excessive deficit procedure (EDP) against the country. The EU executive has sounded its second warning in this respect this month after July.

• Tags:
• deficit,
• legislation,
• economy,
• budget,
• debt,
• fiscal council