Hungary headed for harsh austerity in 2027 if spending continues, Fiscal Council warns

Hungary could be forced into significant austerity measures as early as 2027 if the government continues its current spending policies, according to a new three-year outlook published by the Fiscal Council. The watchdog body warns that pre-election spending and persistently high budget deficits risk pushing the country off the fiscal path agreed with the European Union under the excessive deficit procedure.

Risk of tighter EU oversight

According to Telex, the analysis notes that if Hungary’s actual 2025 figures and the execution of the 2026 budget confirm current trends, the European Commission could propose tightening the excessive deficit procedure against the country as early as next spring. This would mark a shift from the current monitoring phase to a stricter stage of the process, potentially involving additional obligations and even financial penalties.

Beyond the formal consequences, the Fiscal Council highlights the broader risks of such a move, including damage to investor confidence. A stricter EU procedure could translate into a weaker forint, higher government bond yields and increased financing costs for the state.

What the EU expects from Hungary

Under EU rules, member states are required to keep their budget deficit below 3% of GDP. After a pandemic-era suspension, excessive deficit procedures were reintroduced in 2024, and Hungary is among the countries currently subject to the process.

In February 2025, the EU Council endorsed a medium-term corrective path for Hungary, based on a jointly agreed fiscal and structural plan. The goal is to curb the growth of net government spending so that the deficit falls below 3% of GDP over the medium term, while ensuring that public debt declines in a sustainable way.

While defence spending has been granted partial flexibility until 2028, this leeway is limited and does not fully offset the risks created by rising deficits.

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Election spending pushes deficit higher

Despite these commitments, Economic Development Minister Márton Nagy announced in November that the budget deficit would be set at around 5% of GDP in both 2025 and 2026, largely due to measures linked to the 2026 parliamentary election.

According to the Fiscal Council, the impact of these measures will amount to roughly 0.4% of GDP in 2025, rising sharply to 2.2% in 2026. While some of this spending may feed back into the economy through higher consumption and tax revenues, the council stresses that the overall fiscal trajectory remains problematic.

A steep adjustment looms in 2027

The most serious warning concerns 2027. Due to faster-than-planned spending growth in 2025 and 2026, cumulative expenditure growth could reach 0.8% of GDP by the end of 2026, exceeding the EU limit of 0.6%.

If economic growth does not significantly outperform expectations, the government would need to improve the primary balance by around 1.7 percentage points of GDP in a single year to get back on track in 2027. The Fiscal Council makes it clear that achieving such an adjustment without major spending cuts would be extremely difficult.

In practical terms, this would mean substantial restraint on public spending relative to GDP: a scenario widely seen as unavoidable austerity, even if the government avoids using that term.

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No room for tax cuts

The council also warns that the 2027 budget will leave no space for tax reductions. With the cost of government measures rising rapidly, any future tax cuts or the phasing out of special sectoral taxes would only be possible if spending were sharply reduced elsewhere or new revenue sources were found.

Demographic trends further complicate the picture. Employment growth is limited by population decline, wage growth is expected to slow, and generous tax allowances introduced in recent years have already reduced annual state revenues by hundreds of billions of forints.

Past disputes highlight credibility concerns

The Fiscal Council’s latest warning follows a public dispute earlier this year with the Ministry for National Economy over the 2026 budget. At the time, the council identified several risks, including overly optimistic growth forecasts and concerns about healthcare funding levels.

Although the council later clarified that it had not claimed healthcare spending would fall in absolute terms, the episode underlined ongoing tensions between fiscal oversight institutions and the government, and added weight to concerns about the credibility of Hungary’s budgetary planning.

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A narrowing path ahead

Taken together, the findings suggest that Hungary’s fiscal room for manoeuvre is rapidly shrinking. Without a change in course, the government may be forced into painful spending cuts after the 2026 election to avoid deeper EU intervention and to stabilise public finances.

As the Fiscal Council’s analysis makes clear, the bill for today’s spending decisions may arrive sooner (and be far steeper) than policymakers would like.