Budapest, April 13 (MTI) – The government’s draft budget for 2017 focuses on tax cuts and support to families buying a home, Economy Minister Mihály Varga said on Wednesday, before submitting the draft to the Budget Council.
If the budget is passed into law, VAT on pork, milk, eggs, and poultry will be reduced to 5 percent, the minister said. He added that the VAT on catering services would be lowered to 18 percent next year and then to 5 percent in 2018, while the government is also planning to reduce the VAT on internet services.
“Next year’s budget will ensure that everybody can take a step forward; the budget will give increased security for all Hungarians,” Varga said, and added that one chapter of the budget will be balanced in 2017.
Varga insisted that reduced revenues due to the tax cuts and higher home buyer subsidies will be leveraged by higher economic growth and extra revenues from a whitening economy. He argued that the growth figure could reach 3.1 percent of GDP while the deficit overall will amount to 2.4 percent.
The opposition Jobbik party said the draft budget with its projected deficit of 2.4 percent was a “step backwards” considering that the government had promised a balanced budget. Lawmaker Dániel Z Kárpát said in a statement that while the government had talked about reducing the nominal public debt, there is no sign of it in the draft budget. He said this was a clear sign that even after repaying Hungary’s EU-IMF loans, the government is still unable to free the country from its debt trap. Z Kárpát added it was in part Jobbik’s merit that the VAT on basic foodstuffs would decrease next year.
Anaylsts polled by MTI said the budget plan represented a loosening of the government’s fiscal policy, which will result in an increase in the deficit and falling inflation. This will allow the central bank to continue its policy of quantitative easing, leaving the key rate low for an extended period, the analysts said.
ING Bank analyst Péter Virovácz said the government’s expansionary fiscal policy will raise the 2017 budget deficit by 0.7 percentage points compared to last year’s convergence programme.
Erste Bank senior analyst Vivien Berczel noted that Erste Bank projected a GDP growth rate of 2.6 percent for 2017 while the government forecast a growth rate of 3.1 percent. She said the difference between the two projections could stem from additional expansionary measures that the government had yet to reveal.
The telecommunications coordination council HET welcomed the plan to reduce the VAT on internet services and expressed hope that the VAT reduction would help lift demand in the sector.
The Poultry Products Council welcomed the planned VAT reduction on poultry products. Attila Csorbai, the council’s head, said the resulting VAT revenue losses could be offset by the whitening of the sector and increased consumption.