Hungarian gov't decides to pay first instalment of 14th-month pension next year

Pension expenditure will amount to 7,870 billion forints next year, and the 14th-month pension will raise this sum by about HUF 170 billion,

said Gulyás.

"Nothing of the sort is being considered, because we believe that the budget is fine as it is, given the impact of the measures that have just been announced," the minister explained in response to the suggestion that other special taxes, similar to the extra profit tax on banks, could be increased.

When asked about the potential impact of increased deficit targets this year and next year, Gergely Gulyás responded that there are European countries with worse deficits and primary balances than Hungary, so the government is not currently worried about a credit rating downgrade.

Regarding the purchase of US HIMARS, Gergely Gulyás said that negotiations had involved acquiring 20–24 artillery systems and around 100 missiles.

Background: On 7 November, Minister of Defence Kristóf Szalay-Bobrovniczky met with Elbridge A. Colby, Under Secretary of Defence for Policy, in Washington. The minister reported that they had discussed the potential purchase of HIMARS rocket artillery systems and missiles at the Pentagon. Speaking to the press on Saturday, he revealed that the purchase could be considered over a period of three to five years, pending authorisation by the US Congress.

When asked about the 2023 news that Hungary was purchasing HIMARS rocket artillery systems from the United States — with leaked information mentioning 20–24 systems and 100 rockets — the politician responded that this was not an exact figure, but that, in terms of order of magnitude, it was approximately correct. They added that the purchase of all these systems required prior authorisation from the US Congress. The minister also noted that procuring artillery equipment and missiles is a lengthy process, even with congressional authorisation.

"These two solutions have nothing in common," said Gergely Gulyás, in response to a question about the similarities between an IMF rescue package and the US safety net currently under discussion.

According to Gergely Gulyás, a clear agreement was reached at the meeting in Washington that the exemption would have no time limit. The Ministry of Foreign Affairs will request official confirmation of this from the US cabinet in the coming days.

However, this contradicts what US Secretary of State Marco Rubio said at a recent press conference:

In the case of the pipelines on oil and gas, it’s a one-year extension because it would be deeply traumatic to their economy to cut them off immediately.

One of the key elements of the Washington agreements was the domestic procurement of small modular nuclear power plants from the US. When asked about the expected timeline for the arrival of these production units in Hungary, Gergely Gulyás stated that technological development was nearing completion and that within 1–3 years, 5–6 American companies would be capable of constructing operational power plants.

According to the minister, the main advantages of modular reactors are their rapid construction and stable energy supply. These reactors can provide 20-25% of the capacity of the Paks nuclear power plant, which is what Hungary currently needs due to the fluctuating nature of solar energy production.

In response to another question, the minister explained that, following the budget adjustment and the freezing of reserves for next year, there would be no further postponement or suspension of investments.

According to Gergely Gulyás, without US exemption from sanctions on Russian energy sources, the cost of energy arriving in Hungary would have doubled.

Regarding the nuclear agreement, Gulyás said that the procurement of fuel would have a short-term impact, but that small modular power plants could make a significant contribution to the country's energy production in the longer term.

However, a detailed agreement on this is not expected for another two to three years,

he concluded.

According to Gergely Gulyás, market competition and restrictions imposed by the government and competition authorities will stop banks from doing so.

The government will introduce the 14th-month pension in the same way as the 13th-month salary: in four instalments. This will provide each pensioner with an additional average of approximately HUF 65,000. The budget will be able to cover the estimated HUF 170 billion expenditure associated with the measure.

We will complete the 14th month pension in the next cycle,

as promised by the government, Gergely Gulyás confirmed.

In response to a question, Gergely Gulyás confirmed that the government will extend the interest rate freeze until 30 June 2026.

When asked how the government would prevent the cost of the increased special bank tax from being passed on to the public, Gulyás explained that Hungarian banks have made significant profits, and therefore the government believes they are able to bear this additional burden.

This does not answer the question at all. It sounds more like wishful thinking.

"We are not happy about having to raise the extra profit tax on banks, especially since Hungarian ownership holds significant weight in the sector," the minister explained.

"It would be good if they lent from the money they have," he said.

Competition is the most important guarantee against passing on the burden, but the government will also monitor any significant passing on.

The Budapest transport union has issued the government with a 168-hour ultimatum, as the capital city will allegedly be unable to pay January salaries. When asked whether the government would negotiate with Budapest, the minister heading the Prime Minister's Office said that the government is not involved in the capital's economic functioning, and that if Budapest is unable to operate properly within the legal framework, it must notify the government through official channels.

The government will not allow Budapest to become inoperative,

Gergely Gulyás stated.

One of the main outcomes of the Washington negotiations was the financial safety net. However, this has recently generated considerable uncertainty. When asked about the timing of potential assistance, Gergely Gulyás stated that the country is currently stable in economic and financial terms and that US assistance would only be provided if necessary.

In his announcement on Wednesday evening, Viktor Orbán revealed that the government will double the basic allowance for foster parents. This means that the previous allowance of 87,000 forints will increase to 174,000 forints, while the supplementary allowance will also rise to the same amount. Foster parenting will continue to be classified as employment, with the salary increasing from 30% to 60% of the minimum wage. The supplement for foster parents of disabled children will increase from 7% to 15%.

At the same time, the government will increase the number of child protection guardians and their allowances, and develop a network of school guards to protect institutions.

According to Gergely Gulyás, supporting small and medium-sized enterprises is a priority in the current economic situation. The government is committed to doing so, even in the face of a challenging budgetary outlook. This will require doubling the extra profit tax on banks, made possible by their profit growth in recent years. Gulyás also said that financial and energy companies, as well as multinational corporations, should bear a greater share of the public burden, and that this could be achieved through sectoral taxes.

This suggests that, if the budget slips further, the government may widen the net to include other sectors currently subject to special taxes and increase the levy. Representatives of the retail, energy and insurance sectors, for example, cannot rest easy.

We predicted this in our article:

Gergely Gulyás announced that the government and the Hungarian Chamber of Commerce and Industry (HCCI, or MKIK in Hungarian) will sign the new SME support package within the first few days of next week. He added that the final details of the agreement are still being finalised.

According to earlier reports, this could have a budgetary impact of HUF 80 billion and could include minor tax cuts, reduced tax administration and lighter burdens. However, a 1 percentage point reduction in social contribution tax is not yet included in the package.

"Even if the [Russia-Ukraine] war drags on, the government wants to support SMEs, which is why it raised the extra profit tax on banks," explained Gergely Gulyás.

The government has extended the interest rate freeze for the eighth time. The measure applies to mortgage loans with a maximum interest period of five years and will now continue until 30 June 2026. According to the minister, the decision will affect around 273,000 families. Gergely Gulyás announced that interest rates (or rather, reference rates) will remain at the level of 27 October 2021. (Our analysis of the extension is the top link below.)

In his Facebook video today, Prime Minister Viktor Orbán announced that the introduction of the 14th month pension had been approved at yesterday's government meeting. He said that the first instalment of the 14th-month pension will arrive in February next year, when those eligible will also receive a weekly instalment (i.e. a quarter) of the newly announced benefit, in addition to their regular and 13th-month pension.

Over the next four years, the 14th month pension will gradually increase in quarterly instalments, meaning the full benefit will be built up over this period.

Gergely Gulyás, the Prime Minister's chief of staff, said that the main outcome of the talks in Washington was a complete and indefinite exemption from US energy sanctions affecting the Friendship and TurkStream pipelines. He added that sanctions relating to the Paks nuclear power plant could also be considered lifted, provided that the current governments remain in power.

Economic agreements have also been concluded, primarily impacting the energy, automotive, high-tech, and defence sectors. This year will see a record level of US investment in Hungary.

Gergely Gulyás mentioned that the US government is committed to supporting the Hungarian financial system if necessary and that swap lines and credit facilities are among the tools available for this purpose.