MPs adopt Hungary's 2026 budget - therein lies the rub

On Tuesday, MPs voted in favour of the law on next year's budget, with 133 votes in favour, 47 against, and no abstentions.

Before the final vote, Gábor Horváth, President of the Fiscal Council, recalled the organisation's opinion on next year's budget. He also highlighted the risks associated with the early adoption of the budget.

He also emphasised that the draft is in line with the Stability Law, given that the debt ratio could be 0.8 percentage points lower next year than this year. The Council has given preliminary approval for the final vote on the single budget bill.

Standing on wobbly feet

Regarding the 2026 budget, it was previously decided that the government would return to early budgeting, with all its associated pros and cons. In other words, adopting the 2025 budget at the end of last year was a one-off — the first time in 11 years — as our collection below shows.

The government's key argument in favour of adopting the budget early in the summer is that this increases predictability for economic actors, enabling businesses and the public to plan ahead for the coming year.

However, recent budgetary practices have demonstrated that many of the budget's provisions (and even its basic elements) are not set in stone even when adopted into law by Parliament. This undermines the strongest argument for early adoption: calculability and predictability.

The 2025 budget should have been a warning sign. Although it was approved by Parliament in December, it has since been overturned by the government's own policies, such as the extension of family allowances and food subsidies for pensioners. The risks we identified have materialised, particularly the deteriorating macroeconomic outlook and the gloomier growth forecast. This year's budget is therefore in a state of almost permanent flux.

• Just two months in, Prime Minister Viktor Orbán announced new measures that did not leave this year's budget unfazed.
• In April, the government communicated that the deficit target of 3.7% of GDP set in law for this year would be raised to around 4%. Since then, the updated expectation has been 4.1% for 2025, but the government has not officially made the related adjustments. The exact cause of the deterioration in the balance is unknown (there has been no change in expenditure and revenue lines, but this is nothing new).
• In May, Kornél Kisgergely, the newly appointed state secretary for public finance, told Portfolio in an interview that "there has been a significant freezing this year, meaning that fiscal policy has been able to react quickly to changes in the external environment". In other words, the government has not publicly announced any decisions aimed at improving the fiscal slippage, so it is impossible to track what is actually happening. This makes it difficult for outside observers to judge the basis of the 2026 budget.
• At a joint press conference held by the Government Debt Management Agency (ÁKK) and the Ministry of Economy in June, it was revealed that the cash deficit target would also increase this year and that the government would raise more foreign currency funding to achieve this.

During the June briefing, the government revealed that it was revising its growth forecast for this year downwards, from 2.5% to an unspecified figure. Recall that the government previously lowered its forecast to 3.4%. This downward revision of 0.9 percentage points was mainly prompted by the Economy Ministry's upward revision of the 2025 deficit target by 0.4 percentage points.

Assuming that the ministry lowers its GDP growth forecast to around the 1% that analysts now expect, the above logic implies that

the government's budget deficit expectation for this year will rise by 0.7 percentage points.

Based on this, we would not rule out concluding by autumn that a realistic level for this year's budget deficit is around 4.8% of GDP. Whether the government will officially and publicly admit this is a different question. If it does, it could emphasise that the 4.8% deficit would at least be smaller than last year's 4.9%.

'Landmines' and risks in 2026

All of this demonstrates the fragility of the 2026 budget. When the government began planning it in March and April of this year, it expected GDP growth to reach 2.5% this year. However, it is now almost certain that this target will not be met. This is expected to impact this year's budget revenue figures.

In other words, next year's budget is already at significant risk because the base figures for 2025 differ from the government's projections. The Fiscal Council has repeatedly pointed this out.

Therefore, there is a risk that the HUF 192 billion reserve will only just cover the identified risks, or even less. In addition to the negative risks stemming from the weaker base, there are still some pitfalls in the budget. 

1. Weaker-than-expected economic growth next year could also result in lower tax revenues.
2.  There is a real risk that the country will not receive as many EU funds as the government is planning for.
3. Another interesting question is how next year's wage agreement will ultimately work out. In other words, will the government adhere to the agreed minimum wage increase, and if so, will it reduce business contributions?
4. The balance may also be affected by expenditure on open-top items (such as reserves for increases in public assets and defence) and
5. the level of interest expenditure (influenced by euro exchange rate developments and the outlook for interest rates).
6. All of the rating agencies have also pointed to a significant risk: the possibility of government spending ahead of the 2026 parliamentary elections.

The latest amendment to the 2025 cash deficit target proves that the government prefers to spend from the budget without allocating any additional funds, instead financing it by increasing the deficit.

At a press conference last week, state secretary Kornél Kisgergely admitted that one of the reasons for raising this year's deficit target by HUF 651 billion is that the money is needed for the new family support measures already announced (personal income tax exemption for mothers). Therefore, it cannot be ruled out that, before the elections in April next year, the government will announce new fiscal easing measures for which there is no room in the budget, and will finance them by increasing the deficit.

Should this occur, the post-election government will be compelled to address the issue of fiscal adjustment and rebalancing.

Professional investor Viktor Zsiday has commented on this several times, as he expects the government to provide substantial handouts before the elections. The key question is whether investors will finance this, and at what price.

The art of deficit reduction

The above thinking also suggests that the government may have more fiscal flexibility in 2026. Given that external circumstances may cause the budget numbers to differ from the planned figures, it cannot be ruled out that the government will raise its deficit target for 2026.

In such a case, debt reduction could be made conditional upon effective public spending constraints and signals being sent to investors and credit rating agencies that next year's deficit will remain below the target (which we assume will be increased to 4.8%) before the end of this year.

Moreover, in such a scenario, the government could claim that it would stop the deficit at 4.7% in 2026, i.e. it would 'find' a 'manoeuvring room' of 1 percentage point of GDP, which could equate to HUF 800–900 billion compared to the original plans.

Essentially, the next year will determine

whether the government opts for genuine deficit reduction or merely pretends to do so.

The latter would mean that the Hungarian state, which is suffering from fiscal alcoholism, has not been cured.

Sobering up and withdrawal will not be achieved through permanent spending cuts, structural reforms and a rethink of public finances — the more painful but effective method — but through the simpler way of tax hikes.

The latest analysis by the Economy Ministry shows that, in recent years, the government has relied heavily on tax increases to stabilise the budget. The government regularly claims that it will take timely action to balance the budget if necessary.

Based on market feedback so far, the government can be confident in its strategy of moderate deficit reduction and tax increases. Investors have easily funded the Hungarian state's additional financing needs so far. However, this comes at a price, not only in terms of interest expenditure, but also due to the snowball effect of public debt.

Cover photo: MTI Photo/Zsolt Szigetváry