Fiscal Council raises no objections to draft budget amendments, Matolcsy’s signature missing

The Fiscal Council raised no objections to the government’s draft of amendments to the 2023 budget, but acknowledged risks to achieving fiscal targets in an opinion issued on Tuesday.

The Council said there were “no such fundamental objections that would justify signalling disagreement with regard to the draft amendments” in a resolution.

“Russia’s war against Ukraine, the sanctions introduced in response, the explosive increase in energy prices, and uncertainty connected to the external economic environment present risks to the achievability of fiscal targets laid down in the draft decree,” the Council added.

Addressing the amended 1.5 percent GDP growth target for 2023, the Council said the assumption would depend “to a significant degree” on trends on foreign markets, as it would require exports to increase at a faster pace than imports. It said that the target, which is in line with the forecasts of international organisations, is achievable “if the impacts of the war do not worsen and other risks do not strengthen”, adding that a “conservative policy” with regard to using fiscal reserves is necessary.

The Council acknowledged that the amendments enable the government to achieve the main social-welfare policy goals, namely keeping utility prices low up until average consumption, supporting families, protecting the elderly and strengthening Hungary’s defence.

Further, they create an opportunity for keeping pensions in line with the higher-than-expected rate of inflation, partially compensating public institutions for higher energy costs and financing the higher interests on state debt.

The Council acknowledged that the amendments raise the budget deficit target, calculated using the European Union’s accrual-based accounting rules, to 3.9 percent of GDP – from 3.5 percent in the budget act – and said any additional budget revenue resulting from GDP growth over the 1.5 percent assumption should be used to reduce the budget gap.

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The Council said that the higher revenue target is based on a “significant degree” of growth of wages and consumption and noted that some lines target an increase of revenue over the expected expansion of the respective tax bases. On the expenditure side, targets have been raised for financing energy costs, but targets for material expenditures have not been raised to the degree required by the expected increase in operating costs, it added.

“In addition to extraordinary savings measures, this presents significant achievability risk,” the Council said.

The resolution shows the government targets a decline in year-end state debt from 74.0 percent in 2022 to 70.2 percent in 2023.

The Council is chaired by Árpád Kovács, and includes György Matolcsy, President of the National Bank of Hungary, and László Windisch, President of the State Audit Office of Hungary. The signatories of the Fiscal Council’s opinion curiously do not include the signature of György Matolcsy, President of the Central Bank and member of the Council.

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