Hungary's budget deficit is the lowest in nine years, but we can't afford to sit back and relax

According to the Ministry of Finance (PM), the central subsystem closed July with a deficit of only HUF 44.3 billion, the lowest monthly deficit in nine years since 2014, as shown in the graph below. According to the latest data, the combined deficit for the first seven months of the year rose to HUF 2,940.3 billion, with the central budget showing a deficit of HUF 2,983.2 billion, the state's earmarked funds showing a surplus of HUF 118.6 billion and the social security funds showing a deficit of HUF 75.7 billion.

If we look at the cumulative fiscal developments in the first seven months of the year, we see that the accumulated deficit is the largest in recent years (HUF 2,940.3 billion).

The combined deficit in the first seven months of the year is 86.5% of the still officially maintained cash deficit target of HUF 3,400 billion, so this also shows that there is serious tension in this year's budget.

This was recently acknowledged by Finance Minister Mihály Varga, who indicated that the budget would be reviewed after the summer break, in September, and that the government would intervene if necessary. The need for intervention is quite clear from the graph below (although it is not clear whether the government is thinking about raising the deficit target or deficit-cutting measures or a combination of the two). The need for intervention is also underlined by the fact that the minister also sees the possibility of a recession for the whole of this year, i.e. a declining GDP on an annual basis, which would significantly reduce tax revenue opportunities. In the meantime, a string of unfavourable German (and French) economic data in recent weeks suggests that Europe's largest economy could slip back into recession, dragging down the performance of the Hungarian economy, which is currently on the road to recovery.

The Ministry of Finance's statement today also highlights the following:

• In the first seven months of the year, the government spent HUF 1,078.6 billion on compensation for district heating companies and the universal supply and storage of electricity and natural gas to households, which is much higher than the HUF 7.5 billion spent in the first seven months of last year, although the restructuring of the system was only implemented in August last year due to the soaring gas and electricity prices, so the comparison should be treated with caution.
• The government has allocated a total of HUF 380.5 billion for the reimbursement of national and suburban public transport services, which is HUF 87.1 billion more than the funds allocated in the first seven months of 2022.
• Expenditure on housing subsidies amounted to HUF 346.0 billion by the end of July, up HUF 28.7 billion compared to the same period last year. The ministry also points out that spending on maternity allowances was also significantly higher this year, at around HUF 36.0 billion.
• The amounts spent on retirement benefits and preventive medical care have also increased compared to last year, although the ministry does not mention the extent of the increase, only how much these expenditures have amounted to so far this year. The government had spent HUF 3,428.1 billion on retirement benefits and HUF 1,309.3 billion on preventive medical care by the end of July.

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