The deficit of the state budget for 2013 will be HUF 929.2bn, much more favourable than formerly expected and HUF 200bn below the figure projected in the Budget Bill. Consequently, the deficit-to-GDP ratio may be 2.7 percent or even as low as 2.3 percent, Minister for National Economy Mihály Varga said at a press conference.
He added that the government has not yet decided on two issues: the cash-flow balance of the sub sector for local governments and the accounting of the asset transfer for the integration body of savings cooperatives. Speaking about these the Minister said that the Ministry is anticipating a surplus of HUF 90bn at the local governments sub sector, as thanks to the state’s assumption of local government debt the fiscal balances of municipalities are expected to be better than formerly estimated.
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On the revenue side, the Minister said, inflation was projected at 5.2 percent for the 2013 budget, but it will be much lower, 1.8 percent and therefore certain tax revenues are lower than anticipated. The VAT revenue shortfall totals HUF 130-140bn, but excise tax revenues are also lower while those from the financial transaction fee approximately match estimates. Revenues from the social contribution tax came in above estimates and the sale of frequency rights also boosted fiscal revenues, Mihály Varga added.
As the Minister put it, expenditures were by and large in line with expectations. There have been certain one-off expenditures – such as those, for example, related to flooding, the financing of teachers’ career model and the extension of the EU own fund – which were partly financed from surplus revenues.
The Government’s effort not to draw -- as long as possible -- from the HUF 400bn Country Protection Fund has played a key role in achieving a stable fiscal balance. Two further measures were also instrumental in posting a better deficit figure: on the expenditure side, funds of HUF 92.9bn were frozen in May and in June the Government introduced some revenue-improving measures which added HUF 128bn to the budget.
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As Mihály Varga stressed, the fact that the Hungarian economy was put on a steady growth path in the second half of 2013 after the slump seen in the first half has contributed to the favourable fiscal situation. Economic growth even accelerated in the third quarter of last year and agricultural, industrial and construction sectors have all been behind the better economic output figure, while in the second half of last year domestic consumption also joined in as a driving force. Accordingly, the formerly distorted growth driven only by exports and related industrial sectors has become more balanced. In addition, the more intensive utilization of EU resources also contributed to economic expansion, the Minister said.
Last year’s performance put Hungary among those few countries within the European Union which were able to keep the fiscal deficit below 3 percent of GDP and this fact is signalling that Hungary’s budget has been on a stable balance path, Mihály Varga stressed.
He also informed journalists that the Ministry expects economic growth of 2 percent for 2014 and – along with employment -- the purchasing power of wages and pensions are anticipated to continue to be stable which in turn will boost domestic demand.
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Head of Department Richárd Adorján of NGM added that in the Ministry’s estimate the so-called ESA gap, the difference between the figure according to the EU’s accounting method and cash-flow based accounting, is calculated preliminarily by NGM to be plus HUF 41bn, while some smaller transactions are still ongoing. He also said that the EU decision with regard to the accounting of the asset transfer of HUF 135bn provided for the integration body of savings cooperatives is expected for March-April this year. Mihály Varga underlined that the deficit will be maximum 2.7 percent even if the accounting of this item will run counter to the Government’s expectations.
Responding to a question the Minister said that as far as the Ministry is informed one or two banks are weighing the option of withdrawing from Hungary. On the other hand, Mihály Varga said, the Hungarian banking system is stable, the capital adequacy ratios are adequate and the Ministry does not believe that such moves would have significant impact on the budget.
Concerning another question Minister stated that a credible re-evaluation of the flat-rate personal income tax system will only be possible in 2015, as tax laws for 2014 are already is place. In the opinion of Mihály Varga, although economic growth has picked up, revenues are insufficient to plug the HUF 600bn fiscal shortfall potentially caused by a 9 percent income tax rate.
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The Minister also stressed that Hungary will surely not join the eurozone before the middle of this decade; accession may become a viable option by the end of the second half of the decade.
Speaking about the issue of connecting cash machines to the National Tax and Customs Administration he emphasised that having too few cash machines in the country is no longer an obstacle. He also stressed that that the Government and the tax authority have been “extremely constructive and patient” during the Christmas high season and they understand that those obliged to change cash machines need a realistic deadline.
As far as foreign currency loans are concerned, he concluded, the Government is awaiting the verdict of the European Court of Justice.
(Ministry for National Economy)
