Economy 29 September 2017, 9:06am

Hungary's state budget does something amazing

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Hungary’s general government posted surplus also in the second quarter of 2017, which took the accumulated surplus to 270.5 billion forints by the end of June. This corresponds to 1.5% of gross domestic product, while this year’s official budget deficit target is 2.4% of GDP, i.e. the budget can afford a huge deficit in the second half of the year.

Surplus in Q2

Hungary’s general government recorded HUF 18.2 billion surplus in Q2, which corresponds to 0.2% of GDP. The Q2 reading is HUF 38.9 billion better than the corresponding balance last year.

Revenues rose HUF 516.3 bn or 13.3% year on year. Expenditures were HUF 477.4 bn (12.2%) higher than in the base period.

The surplus of the general government sector in H1 was HUF 270.5 billion, 1.5% of GDP according to the preliminary data, HUF 183.9 billion more or 1.0 percentage point higher as a proportion of GDP compared to the same period of 2016. The change in the balance was due to a larger increase in revenues than in expenditures, the Central Statistical Office (KSH) reported on Friday.

In the first half of the year, revenues grew by HUF 748.8 billion or 9.9%. Social contributions were up by HUF 54.8 billion (2.4%). Taxes on income were HUF 96.2 billion (7.9%) higher than a year earlier, mainly resulting from payments from the recipients of tax credit for growth. Taxes on production grew by HUF 191.1 billion (6.2%), within which HUF 127.4 billion (8.1%) was an increase in VAT revenues. The largest, HUF 404.2 billion (41.7%) increase was recorded in other revenues, consisting mainly EU transfers.

Expenditures increased by HUF 564.8 billion or 7.5%. The growth was HUF 148 billion (8.1%) in paid compensation of employees, HUF 42 billion (1.9%) in social benefits other than social transfers in kind and HUF 178.7 billion (13.9%) in other expenditures. Gross capital formation grew by HUF 277.5 billion (79.9%). On the other hand, intermediate consumption was HUF 51.8 billion (-4.3%) less and interest expenditures were HUF 29.6 billion (-5.2%) lower than a year earlier.

There’s ample manoeuvring room there

The four-quarter trailing average shows 1.3% budget gap for H1, whereas the cabinet's official full-year target is for a deficit of 2.4% of GDP. In view of this we can state that the government has an extremely wide elbowroom for additional spending.

We estimate that the budget could tolerate even a deficit of 12.5% of GDP in the second half of the year.