Bloomberg: Orbán cabinet prepares to unleash monumental pre-election spending despite serious budget imbalance

The Orbán cabinet will accelerate state spending before the 2026 general elections because that is a way to win again. According to Bloomberg, instead of financial consolidation and budget cuts creating a balanced state budget, the Orbán cabinet plans to pour out a lot of money again. Last time, it resulted in Europe’s highest inflation and an economic backslide. Now, a lot depends on the American presidential elections. Is an economic collapse acceptable for another Orbán victory?

PM Orbán in trouble before the 2026 elections?

The Hungarian government surprised decision-makers by announcing earlier this year that they would not draft the 2025 budget plan before the results of the American elections are announced. Experts raised their eyebrows because such coupling between the USA and Hungary is weird, but we know that the relationship between Trump and Orbán is special. Trump regularly praises the Hungarian prime minister, and Orbán was the first world leader to back Trump in 2016. Probably that is why Politico’s Paul Dallison put Orbán in Trump’s dream team as secretary of state in a satirical column.

It seems that the 2026 elections will be difficult for PM Orbán, who has been holding the office since 2010 (he also had a term between 1998 and 2002). Based on the latest poll, the ex-husband of former Justice Minister Judit Varga, Péter Magyar and his Tisza Party have only 0.5 million fewer votes than Orbán’s Fidesz. 42% of the voters promising to participate in the elections would choose Fidesz, while 33% would cast their ballots on Tisza. Never before has the difference between Fidesz and its main challenger been so narrow since 2010. Gyurcsány’s Democratic Coalition would receive 8%, while Our Homeland would get 7%.

Is Orbán preparing to spend a lot to win votes?

Bloomberg wrote yesterday that Orbán wants to introduce budget-shaking spending again to win the 2026 general elections instead of introducing austerity measures that Hungary’s budget badly needs. The media outlet talked with people familiar with the situation. However, Orbán will wait for the American presidential elections with the planned shift and the end-2024 credit rating of the country. Based on the expectations, Hungary will be rated at or near the lowest investment grade.

According to index.hu, the recipe worked in 2022 and brought Orbán his biggest supermajority ever. However, the reimbursement of personal income tax for families raising kids triggered Europe’s highest inflation and an economic backslide. Moreover, the Hungarian National Bank had to increase the base rate to Europe’s highest, 18%, to protect the forint from a possible collapse. The government could not restart the economy despite their multiple attempts.

Critical voices from inside

Bloomberg wrote that the government will increase spending for 1.5 years before the elections extend the country’s budget deficit. PM Orbán supports the idea because he believes that is the only way to win the elections. Not everybody agrees with the prime minister. For example, central bank governor György Matolcsy called the spending before the 2022 elections and not joining the fight to curb inflation serious errors at a conference.

In 2024, the government turned to consolidation by postponing lots of developments and cutting back some expenditures. Some measures were controversial. For example, despite the economic hardships, the government bought Budapest Airport for EUR 4.3 billion.

This summer, the prime minister announced the doubling of tax refunds for families raising kids. He also talked about credit programmes for the SME sector and further tax reliefs for people buying property. The Ministry of Finance said such plans do not endanger the budget. Minister Mihály Varga called Bloomberg’s information a 5-star fake news. They added that the deficit will gradually decrease in the following years following this scheme: 4.5% in 2024, 3.7% in 2025 and 2.9% in 2026.

Minister discusses positive outlook for Hungary economy

The outlook for the Hungarian economy is good, with the current moderate economic growth set to accelerate, Finance Minister Mihály Varga said at the closing plenary session of the 62nd Itinerant Conference of Economists in Nyíregyháza (NE Hungary) on Friday.

Discussing the possibilities of the Hungarian economy, the minister noted that the country had to face a series of unexpected challenges during the past four years. Pandemic was followed by war, and the war still continues, he said.

Mr Varga said the outlook for the Hungarian economy was good and since 2010, the weaker long-term output of the economy had been due to external shocks such as the Covid pandemic or the war in Ukraine. At the same time, the growth potential of the Hungarian economy has been steadily increasing since 2010, he said.

This year, the government is taking steps to reduce the budget deficit and the state debt and achieve sustainable economic growth, Mr Varga said. Measures taken this year have increased the fiscal room to manoeuvre by more than HUF 1,000bn, he added. The government is keeping to the deficit target of 4.5% this year and will reduce the deficit to 3.7% next year and 2.9pc in 2026, the finance minister said.

He noted that the financing of 20% of the state debt is now directly held by domestic retail investors and the aim is to raise this to 25pc. The state debt is back on a downward path again and set to reach around 73% by year-end, he added.

All forecasts suggest that Hungary’s economic growth could be around 3.5% next year, above the EU average, Mr Varga said. In addition to stabilised indicators, growth could be supported by stronger consumption, improving foreign trade and persistently high employment. From the government’s side, growth should be supported by fiscal balance and targeted economic programmes.

Among downside risks, the minister named the declining industrial output, the ill health of the German economy and the unpredictability of raw material prices.

Industrial output edges 1.3% lower in July

Output of Hungary’s industrial sector fell 1.3% in July, a first reading of data released by the Central Statistics Office (KSH) on Friday shows. Adjusted for the number of workdays — of which there were two more than in the base period — output was down 6.4%. KSH said production volume fell in the automotive segment, in the electrical equipment segment and the computer, electronics and optical equipment segment. Output of the food, drinks and tobacco segment rose.

In a month-on-month comparison, output was unchanged one a seasonally- and workday-adjusted basis. For the period January-July, industrial output declined 3.0% year-on-year. KSH will release detailed data on output of industrial sector branches on September 13.

Read also:

• CRRC ZELC to build Chinese-Hungarian train factory in Hungary – read more HERE
• Russian oil dispute in Hungary: Market struggles or internal conflicts