Presenting the budget bill in parliament on Wednesday, Mihály Varga, the finance minister, said next year’s budget would ensure steady economic growth.
Within the pursuit of a disciplined fiscal policy in 2019, more money would be available for family support, measures to address demographic problems, job creation, retaining the workforce, preserving the real value of pensions, developing the economy, and protecting Hungary’s borders, he said.
The government has secured the resources for this spending thanks to growth that has outstripped the EU average since 2013, Varga added.
It expects economic growth of 4.1 percent next year and it calculates with annual inflation of 2.7 percent, the minister said, adding that plans are for a lower deficit target of 1.8 percent.
When drafting the budget, the cabinet took into consideration developments in the global economy, which could turn sour, so reserves have been increased accordingly, Varga said. In 2019, both the general reserves and a safety reserve linked to meeting the deficit target will increase by 1.5 times compared with this year, he added.
The public debt-to-GDP ratio will continue to decline, falling to 69.6 percent according to EU methodology. Deficit spending will only go towards developments and investments, he said.
Varga said spending will increase in several areas. Education spending will increase by 15 billion forints while and extra 101 billion forints will be pumped into health care. The budget for public security and defence will increase by 156 billion forints, he said, noting additional resources were needed to combat migration and the associated risk of terrorism.
Referring to ongoing reforms to the armed forces, Varga said spending in relation to GDP on defence would double by 2024 compared with this year.
In 2019, the money for various family support programmes will exceed 2,000 billion forints. Further, tax allowances for families with two children will increase to 40,000 forints each month.
Next year, VAT on all types of milk will drop to 5 percent. Also, up to 20,000 forints worth of bank transfers for household bills will be exempted from the financial transaction, he said.
Social contributions currently at 19.5 percent may be reduced by another 2 percentage points, depending on real earnings.
To make it easier to employ older workers, retirement income will not be subject to social contributions from 2019, he added.
Corporation tax cuts linked to investments will be broadened next year. Businesses will be able to deduct up to 10 billion forints a year from their tax base for profit reserves dedicated to investments, up from 500 million forints at present.
The tax threshold for small businesses will rise from 500 million forints to 1 billion. As long as income does not exceed 3 billion forints, the taxpayer will remain in that category.
Next year, the tax on culture and accidents tax will be abolished alongside health-care contributions, he said. The tax on third-party vehicle insurance will also drop, he added.
There will be a further 5 percent increase in the salaries of soldiers and law enforcement employees. Health-care professionals can expect an additional 8 percent salary increase from next November, Varga said.
Varga said that almost 2,000 billion forints will be paid out from EU funds next year. With a view to boosting the competitiveness of Hungary’s economy, the government will invest 4,000 billion forints in development projects, he added.
The pension insurance fund will remain balanced and the government will allocate reserves of 24.7 billion forints accordingly, the minister said.
The head of the Fiscal Council said during the parliamentary debate of the bill that the 2019 budget bill reflects stability, and its targets are achievable if domestic and external trends remain favourable.
The macroeconomic indicators used for budget planning are optimistic compared to various forecasts, so the planned revenues linked to these carry a certain element of risk, Árpád Kovács said.
However, keeping the public debt at bay will not be at risk even if economic growth is slightly more modest than expected, he added.
The 1.8 percent deficit target is viable, taking into consideration the available reserves. During a time of economic boom, shrinking the deficit at the current rate will not hold the economy back because loans are readily available in the private sector, Kovács said. The greatest risks are the macroeconomic path and projected tax revenues, he added.
Erik Bánki of the ruling Fidesz party called the 2019 bill a budget for families that would ensure steady growth. In the debate, he said the budget would preserve Hungary’s security, maintain economic growth and support for families while keeping the creation of full employment in mind. He said since 2010 Fidesz had pursued responsible budget management. The budget deficit is declining and economic growth is no longer based on foreign credit, he added.
János Volner of the opposition Jobbik party called the 2019 budget “unsustainable” from an economic and social point of view, saying it failed to address the challenges faced by the Hungarian economy and society, and it did not contend with structural problems.
In the debate, he said the budget failed when it came to demographic problems, migration, and “Hungarian-Roma coexistence”. It also failed to deal with the fact that Hungary is dependent on EU funds, foreign investments and remittances by Hungarians working abroad, he said.
Bertalan Tóth, the leader of the opposition Socialist Party, said the budget bill was “anti-future”, and he vowed to submit a package of amendments. He insisted that the draft budget was “stuck in the past” and favoured people with larger incomes while devoting less money, in proportion to GDP, to health care and education. He added that more funds would be available for “government propaganda”.
László Varjú of the Democratic Coalition branded the draft budget as one of “unpredictability, uncertainty and inaction”. He insisted that it would cause families and businesses to lose out and deprive them of opportunities. He called for a complete re-think, adding that assumptions such as a target of 2.7 percent inflation should be replaced by the central bank’s latest projection of 3.1 percent. Since the bill’s preparation in April, major changes have taken place on the macroeconomic front such as the depreciation of the forint, Varjú said.
Antal Csárdi of the green LMP party said the budget proposal did not bother with social injustice.
He said the government would continue to run an austerity budget in the field of education, given that funding allocations did not keep up with inflation. He also criticised changes to the funding of the Hungarian Academy of Sciences, which he said was a similar “attack” by the government as it made against the CEU.
Bence Tordai of Párbeszéd said the budget was fit for an unjust country and he added that the period of Fidesz governance was one of missed opportunities.