Economy 3 January 2023, 9:59am

Hungarian government sector runs a large deficit

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The deficit in the general government sector increased sharply in the third quarter of last year, according to data from the Hungarian Central Statistics Office (KSH). This is because the increase in expenditure outpaced the rise in revenue.

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Between July and September last year, the government ran a deficit of more than HUF 930 billion. This was 5.4% of GDP, significantly higher than in the first two quarters. The chart below shows that the budget deficit, which widened in the 2020 Covid crisis, has not consolidated during the recovery in 2021, and today's data shows that the deficit remains sizeable.

Hungary's general government sector balance by quarter

The large deficit reported today breaks a positive trend that was also supported by the first half of last year. The four-quarter trailing deficit could not continue to narrow.

Four-quarter trailing average for Hungary's general government sector balance

However, the deficit still narrowed compared with a year earlier: the third quarter balance was HUF 261 billion, 0.5 percentage point worse than a year earlier.

Revenues increased by HUF 1133 billion, or 20.3%.
Expenditure increased by HUF 1394 billion, or 22.3%.

"In the first three quarters of this year, the government sector deficit was HUF 1,825 billion, or 3.7% of GDP, according to preliminary data. Compared to the same period of the previous year, the balance was HUF 366 billion, or 1.7 percentage points of GDP better," KSH reports.

In the period ahead, the government will need to keep a tight fiscal stance to meet the deficit target, which has been increased from 3.5% to 3.9% in 2023. The four-quarter trailing deficit took an unfavorable turn with the latest data, approaching 6% of GDP. The deficit thus now needs to be reduced at a time when economic growth is fading; hence the budget cannot support GDP growth, and fiscal policy will be pro-cyclical.

As for the detailed data, in the third quarter of last year

revenues increased by HUF 3971 billion, or 24.7%. Production taxes grew by the largest amount, HUF 1,281 billion, or 18.3%, of which VAT revenue increased by HUF 966 billion (25.0%). Income tax receipts were HUF 1 225 bn, 54.7% higher than a year earlier, mainly due to the refund of personal income tax to families with children (the accrual accounting treatment of the refund reduced the base period). Social contributions were HUF 487 bn, 11.5% higher. Other revenue increased by HUF 975 billion, or 37.6%.
Expenditure increased by HUF 3605 billion, or 19.7%. The increase was HUF 743 billion (17.4%) for the compensation of employees and HUF 755 billion (17.7%) for social benefits in cash. Intermediate consumption increased by HUF 503 billion (16.0%) and interest expenditure by HUF 325 billion (35.5%). Gross fixed capital formation fell by HUF 4 billion, or 0.2%. Other government expenditure was HUF 1,283 billion, or 35.9% higher.

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