Hungary EcoMin admits debt-to-GDP ratio rose in 2024
This is how the new Economy Ministry will operate
"New ministry, economic environment and business challenges, these are the three topics I would like to talk about," said Márton Nagy at the beginning of the press conference.
Of the six state secretaries in the Ministry of Finance, three remain: the head of tax authority NAV, Péter Benő Banai, and Bence Gerlaki, state secretary for taxes. The other three have been merged into the existing state secretariats of the Economy Ministry, he explained. The ministry has fewer state secretariats than the two ministries separately, he added.
Péter Benő Banai's name may come as a surprise, as outgoing Finance Minister Mihály Varga, who will replace György Matolcsy at the helm of the central bank (MNB) in March, presented Banai as his future colleague at a hearing for his new position, which suggested that Banai would leave his budgetary duties behind. Márton Nagy's announcement today confirms reports that Banai would stay to prepare the 2026 budget bill and could leave only afterwards.
At last week's staff meeting, I assured everyone that there will be no further organisational restructuring and that the work that has been going on in the Ministry of Finance will continue, said Nagy.
Mihály Hoffman will become the CEO of the Government Debt Management Agency (ÁKK) following the departure of Zoltán Kurali, the minister confirmed recently information.
The Economic Cabinet will remain and will continue to be headed by Márton Nagy, but from now on the Budget Working Group will also be part of it, giving the minister veto power over budgetary spending, he explained. The Strategy Cabinet will continue to be headed by Gergely Gulyás, the Prime Minister's chief of staff.
The Budget Working Group Force will not review decisions of the Cabinet for Economic Affairs, because this decision will be made during the Cabinet's work. It can review the decisions of the Strategy Cabinet, Nagy explained.
"The spending structure of each ministry will be managed differently, and will take an economic policy perspective. The Finance Minister will not act as an accountant, but as an economic policy maker," he jabbed at Varga.
Public debt was not reduced, it could be 73.9% [of GDP in 2024],
the minister admitted, underlining that the debt ratio will be lowered this year and so will the budget gap. In 2023, the debt-to-GDP ratio was 73.4%, but Márton Nagy now says it could have risen to 73.9%-74% by the end of 2024.
Nagy said he will seek open, transparent cooperation with the new central bank governor [Varga]. There is room for debate, but it must take place in the rooms, he said. The staff of the MNB is an excellent staff, and with the arrival of Mihály Varga, the staff will take on a different approach in terms of openness and cooperation.
Economic environment
Last year, economic growth was around 0.4-0.5%, said Nagy.
An economic recovery started in September, and the situation of families has also improved significantly since then, he added.
2025 is the year of families and SMEs and this also means a new alliance, an alliance that is reflected in the 21-point action plan.
Employment is outstanding, there is a rebalancing in employment, trade is consolidating significantly. It is here that the loss of labour is greatest, as well as in agriculture. Market services are absorbing this labour. So there is a transformation in the Hungarian labour market, he assessed.
Real wages rose by 9% in December and are expected to continue to rise by around 4-5% this year. We will keep inflation down, said Nagy. Inflation will return to around 3% in the second half of the year, and inflation should start to fall from February, not January, he added.
Inflation peaking in January is in line with analysts' expectations. However, after today's worse-than-expected December inflation figure (4.6%), it is possible that the peak will be close to 5%.
Nagy stressed that the highest real wage increases were achieved among those with the lowest incomes and those earning the average. In 2024, 82.1% of full-time employees increased their real earnings, and the ministry expects this figure to rise further in 2025. Real earnings growth could become even more widespread this year, the minister said.
According to its assessment, consumption growth has clearly taken off, with the first three quarters showing the 5th best household consumption growth in the EU. December will show a drop in retail sales because after the 23rd there was a six-day holiday, with an extremely large number of people travelling domestically or abroad. For this reason, December will be a special month, he explained.
Domestic tourism is being driven by both domestic and foreign demand, he added.
Hungary's household credit growth was the 6th strongest in the EU last year, he continued, adding that 2025 will also be a peak year in this respect.
The number of residential transactions increased by more than a third in 2024, he added.
The upturn could continue this year, he said.
So the economic turnaround is underway, but we are still at the beginning, as the 21-point economic action plan has not yet had an impact, the minister said, adding that the turnaround for SMEs is still to come.
The key is a turnaround in lending in this area,
he underlined. The most important thing in the life of a company is demand. If there is no demand, why should a company borrow, he said, highlighting one of the key challenges. He spoke in particular about the 1+1 SME investment opportunity, for which interest is high.
The central bank may also be needed to help turn around lending to SMEs, he noted.
He is counting on the banks in this area too, of course.
SME sector
The attitude of tax authority NAV, the National Authority for Trade and Consumer Protection (NKFH) will change. Cooperation will be based on trust, Nagy said, foreshadowing new plans to improve SME confidence.
The government has promised that the National Tax and Customs Administration will continue to help taxpayers in 2025, the minister said, listing the automated services and online functions available to taxpayers.
The Economy Ministry is looking at further directions in the field of tax simplification, Márton Nagy said.
The government will reconsider the advance payment and abolish it for local business tax, the minister said. His presentation revealed that this could be a simplification for sole traders and micro-enterprises.
The ministry will raise the tax-free threshold for VAT (to HUF 18 million) and for small business tax KIVA (from HUF 3-6 billion to HUF 5-10 billion, entry up to HUF 5 billion, exit at HUF 10 billion).
The minister also promised to help self-employed people, and mentioned tax administration cuts at this point.
Questions and Answers
Never before have so many Hungarians travelled abroad after 23 December as in 2024, he added.
Last year's fourth-quarter GDP growth could be a small positive figure, both quarter-on-quarter and year-on-year, he said in response to another question. The increase in consumption is already reflected in the import data, he pointed out.
Never in my career has such a large volume of maturities fallen on such a short time horizon and so much liquidity moved through the system for the savings of the public.
"It's going to be crazy," he said, referring to maturing Hungarian government bonds. It's a lot of people's money, he said. If the government bonds are sold by retail investors at banks, they will go back to the banks and the ÁKK has the option to redeem them, he explained.
During last week's meeting with banks he also discussed the purchase of government bonds by banks to reduce their tax liabilities.
There will be close discussions with banks on corporate lending, he said. These will start this Friday with the Banking Association and I expect a substantial programme, he added.
I do not believe in VAT cuts, trade will eat it up immediately,
said Márton Nagy in response to a question on whether the government should act to curb food price rises. He asked if prices have gone down because they introduced a 5% VAT on new housing. He says they haven't dropped, but it was an incentive for developers to build new homes.
He also said Donald Trump taking office [on 20 Januar] will be a game changer. Apart from that, the most important task he will be dealing with in the next 1.5-2 months is the issue of premium Hungarian government bonds.
Hungary will have a budget for 2026 by the start of July,
said Nagy, which means the cabinet will return to the practice of early budget drafting, the usefulness of which have already been put into question by numerous subsequent revisions over the last few years.
It is no longer a special year, it is a normal year, next year's budget will be presented to Parliament in the summer, and tax cuts could come into effect from January 2026, he said. (This year they waited with the budget bill for the US elections in early November.)
When asked by Portfolio, Márton Nagy said the annual quota for issuing new guest worker permits has decreased to 35,000 from 65,000 people, mainly due to macroeconomic reasons, with more people entering the labour market recently, for example, from their former inactive status. The automotive sector is not doing so well either, for international reasons, the minister said, referring to the fact that the labour market in this sector is not so tight.
Nagy pointed out that two groups will account for 20,000 people out of the 35,000 annual quota: (1) licences submitted at the end of last year but not yet validated, and (2) licences to be renewed. An example of a renewal is when someone's 2-year licence expires and they want to extend it for 1 year. This case is also part of the 35 000 quota. Therefore, according to him, the free quota that can be used for guest workers this year is actually more like 10,000 to 15,000. In this case it is for Georgia, Armenia and the Philippines.
However, he added that the government is able to manage the situation so that guest workers do not come from just one country, and that the Interior Minister has the power to limit this. This means that in practice 10,000 to 15,000 genuinely new guest workers could arrive in Hungary with permits this year, which in practice is very small, he said.
Premium Hungarian Government Security (PMÁP)
There was a lot of discussion on the issue of the Premium Hungarian Government Security (PMÁP) in particulary. Portfolio has already reported in several articles that HUF 3,000 billion will be looking to be re-invested in the market in the next 1-2 months.
A very important question, according to the minister, is where the expiring PMÁP and the amounts paid on the instrument will go. A lot of money will move [and] it is in line with economic policy if this money goes to the real estate market. It is not the aim that this money should not move, that is my first statement, he said.
My second point is that there are things that can be responded to and economic policy can respond to, to encourage where the public can reallocate funds. If reallocation goes beyond a certain threshold, then government action is needed, he noted.
We do not want this money to leave the domestic banking system,
Nagy stressed.
If the population wants to continue to save this amount, incentives must be opened to keep the amount within the system, Márton Nagy added, and indicated that
there is an action plan for the PMÁP,
which he will not reveal at this point. It will be proven in hindsight whether the action plan was necessary to keep the money in the banking system and the treasury.
Every day we look at where the money has gone and where people are spending it
Márton Nagy said that this is a priority for the ministry. He also spoke about the fact that there are more opportunities for retail savers in this area. If the money from PMÁP goes to MÁP+, that is good. If it disappears from the treasury but appears in the banking system, it can be good again. Private banking clients if they switch their retail government security savings to another retail government security, that's fine too.
If there are too many redemptions of retail government securities, the stock can fall, which causes a funding problem, but there is no such problem now because the liquidity remains in the PMÁP at the banks, he explained. He said the ÁKK will not necessarily exercise its option to accept retail government securities from banks at this point.
"If the banks cooperate, we will cooperate," he said in response to a question on the extent to which the ÁKK will exercise its option to redeem retail government securities that retail investors hold with banks.
Ultimately, Márton Nagy argues, banks will be better able to finance public debt with retail government bonds remaining on their books.
"We are looking daily at where these funds have gone and where the public is spending their money," he reiterated.
He also added that retail government securities held by banks are not included in the stock that can be used to reduce the amount of the special bank tax. According to him, banks are not interested in reducing their holdings of government securities, because then they cannot lower the bank tax and this will hurt their profit figures.
Cover photo: MTI Photo/Róbert Hegedüs
