Budapest, December 28 (MTI) – Hungary’s government will stand by its assumptions in the 2016 budget for the time being, Economy Minister Mihály Varga said in an interview with MTI, though he acknowledged that growth trends remained a “big question” for next year.
Hungary’s economic growth is expected to exceed the European Union average next year and the government does not wish to amend the 2.5 percent target in the budget, Varga said, adding that the government’s forecast for inflation next year remains 1.6 percent.
The minister noted low raw material and oil prices as an upside risk, but added that the resulting impact on the economies of Turkey, Brazil and South Africa could weigh on investors’ assessment of other emerging market countries, such as Hungary.
The minister noted that the forint weakened after the Federal Reserve’s rate hike in mid-December, although to a lesser extent than other regional currencies. He said Hungary’s roughly 3 percent GDP growth and stagnating inflation are signs that the government’s reforms are working.
Varga said a recently introduced system that tracks road haulage shipments in Hungary would be “fine-tuned” next year, while more businesses would be required to use tills connected directly to the tax office, further boosting tax revenue. A government crackdown on tax fraud has reduced the scale of Hungary’s shadow economy from around 30 percent to 20-22 percent of GDP, he added.
He said the fiscal impact of a reduction in the VAT rate on home construction could be assessed only after the first half of next year. The minister said the expansion of the construction sector could be limited by the capacities of construction firms. Given the decline the construction sector has endured over the past years, the industry is unlikely to see a sudden surge in output, Varga said.
On the expected impact of the reduction of the banking tax, Varga said the government had adhered to its agreement with the European Bank for Reconstruction and Development and Erste Bank, and reduced the bank levy, although the European Commission had objected to the original proposal for the move. The government, however, insisted that the budget revenue from the bank levy in 2016 cannot be less than the projected revenue passed by parliament.
This was how the final banking tax rate ended up at 0.24 percent after talks with bank leaders and the Hungarian Banking Association, Varga said, noting that 2009 will be used as the benchmark year for total assets in all cases even in 2016. The government expects the lowered banking tax to encourage lending activity and thus promote economic growth because while the economy has been growing over the past years, the banking sector’s lending activity has been declining, Varga said.