Economy 20 May 2025, 8:21am

Hungarian gov't makes major pledge on extra profit taxes for the umpteenth time

Portfolio

The government's plans are now complete, after the budget proposal and the tax package, the government has recently submitted the chapter volumes of next year's budget, the most interesting of which is the Ministry of National Economy's (NGM) updated medium-term macroeconomic forecast and the main figures of the budget after 2026. It also shows, for example, that the government will again not count on revenues from extra-profit taxes from 2027.

költségvetés 2026 nagy márton kövér lászló parlament

The 2026 budget and the associated medium-term government plans are being finalised. The ministry responsible for fiscal policy has attached the chapters of next year's budget. In just four weeks, next year's budget will be finalised with a final vote in Parliament scheduled for 16 June.

This is the future ahead for the Hungarian economy

The government has not changed its medium-term growth expectations presented two months ago. After GDP growth of 4.1% next year, the government expects growth of 3.9% in 2027, 4.1% in 2028 and 4.1% in 2029. The NGM assumes that the value of GDP at current prices could be close to HUF 120,000 billion by 2029.

The deficit is more interesting, as the exact figure is a deficit of 3.748% of GDP in 2026, while the government has so far communicated a deficit of 3.7% of GDP. We can also see that

the deficit targets previously set have slipped by a full year in half a year, with the government expecting 2.9% in 2027, 2.2% in 2028 and 1.5% in 2029.

Last autumn, when planning the 2025 budget, the government expected to reach the 1.5% deficit target by 2028.

According to the updated deficit projections, the primary balance of the general government as a whole could turn positive in 2028, i.e. the budget would no longer be in deficit excluding interest expenditure. If the government's calculations work, that is.

It is worth recalling at this point the updated macroeconomic forecast of the European Commission, just released on Monday:

Here's the kicker!

At least as important as the medium-term outlook for macroeconomic parameters is the balance of public finances, which the government has now prepared for the years 2025-2029. It shows exactly what the government expects to spend and receive over the next 5 years.

Most interesting from this table is what the government plans to do with the extra profit tax introduced in 2022 after 2026.

For payments from financial institutions, the government expects HUF 126.4 billion in 2027, up from HUF 292 billion in 2026.
For insurance companies, the special tax revenue expectations fall from HUF 220.3 billion in 2026 to HUF 171.9 billion.
Budget revenue from retail sales tax is expected to fall from HUF 329.2 billion next year to HUF 204.9 billion in 2027.
Energy sector payments fall from HUF 195.9 billion in 2026 to HUF 83.3 billion in 2027.

In total, the government plans to "forego" HUF 451 billion in 2027 on the revenue side.

So, on this basis, we can say that the government has again implicitly promised to remove extra-profit taxes from the public finance system completely after 2026. In this context, the chapter volume states that "the fiscal outlook for 2027-2029 is based on the macroeconomic trajectory underpinning the bill". "The calculations assume the so-called 'no change in fiscal policy' scenario where there is no parliamentary or government decision to deviate from the current rules," they add. For this reason, the government describes in the chapter volume that it expects the extra profit tax to be phased out from 2027 on the balance sheet line on contributions from financial institutions. Similarly, the draft does not take into account the extra payments from the energy sector from 2027. It is interesting that no similar promise is described in the chapter volume for the insurance tax and the retail sales tax.

However, the government's promise to phase out the extra profit tax is likely to be met with scepticism by representatives of the sectors concerned (banks, insurance companies, energy companies, retail chains), due to the following factors:

One of the key features of the 2026 tax package is that it raises all extra-profit taxes from emergency ordinance to statutory level. This does not necessarily mean that it will remain part of the tax system permanently, but it increases the chances of this scenario.
The experience of recent years (the government introduced the extra profit tax in 2022 with a 2-year term) has shown that the government is fond of this tax increase when it needs resources to patch up slipped budget plans.
The communication of the NGM has already changed recently. It does not link the scope of the extra profit tax to a specific timeframe, but to the time the extra profit is assessed to exist.

Portfolio wrote about the experiences and promises of previous years here:

We are therefore eagerly awaiting the detailed evolution of the revenue side of the post-2026 budgets (we will know in a year's time), including the future of the extra-profit tax. But it is also a fact that, after the fiscal loosening expected in the 2026 election year, the incoming government will have to make a very careful assessment of all revenue sources, and it will be very important to balance the revenues it gives up if it really wants to give up these items.

Cover photo: Márton Nagy, Minister of National Economy (l) speaks before handing over the government's 2026 budget bill to László Kövér, Speaker of Parliament (r) in the Gobelin Hall of the Parliament House on 6 May 2025. Source: MTI Fotó/Péter Lakatos