The government submitted the first draft of its 2013 budget bill to Parliament last Friday. The proposal targets a deficit of HUF 686.5 billion (EUR 2.41 billion), equivalent to just 2.2 per cent of projected GDP. This would mean a primary budget surplus (that is, excluding the cost of servicing existing debts) of two per cent. The bill sees government debt fall to 76.8 per cent of GDP by the end of next year, using EU accounting standards.
The Fiscal Council, an advisory body comprising the governor of the Hungarian National Bank and the head of the financial regulator PSZÁF, has questioned the bill’s assumption that the economy will grow by 1.6 per cent next year. The government’s response was to reiterate its commitment to securing a precautionary credit line from the International Monetary Fund, state news agency MTI reported. The assumption is that the boost to investor confidence would have a positive effect on Hungarians’ willingness to consume.
The government accepted the Fiscal Council’s recommendation to increase the fiscal buffer it calls the National Protection Fund, doubling it to HUF 100 billion (EUR 3.50 million). The draft bill argues that this would cover shortfalls resulting from lower-than-planned-for growth of as little as 0.7 per cent of GDP.
In terms of specifics, the bill calls for a 16 per cent increase in funding for the government’s workfare scheme for the long-term unemployed, who stand to lose welfare benefits if they refuse to take part. Next year HUF 153.8 billion (EUR 538.10 million) will be spent on the scheme, which so far has generally put people to work clearing ditches and tidying fields in rural communities. The 2013 budget aims to fund 250,000 workfare jobs.
A key move on the revenue side is the introduction of the planned financial transaction tax, which will affect such mundane dealings as standing orders, deposits and withdrawals. The government expects to raise HUF 130 billion (EUR 454.92 million) next year. This new levy on the banking sector (or its customers) will be introduced while the “crisis tax” on the balance sheet totals of banks remains in place, albeit for a final year and at half of this year’s rate. In an appendix, the sum the government hopes to raise through the new tax from 2014 onwards increased to HUF 322 billion (EUR 1.12 billion).
Opposition politicians criticised the bill before regular business in Parliament on Monday. Socialist lawmaker József Tóbiás said a funding cut will halve the size of subsidies for drugs. Health Secretary Miklós Szócska said current excessive spending on drug subsidies was a legacy of earlier Socialist governments. Gábor Vágó of the green party LMP said government policies are creating an underclass of three million poor. Uncertainty and an increasing tax burden meant National Economy Minister György Matolcsy’s “fairytale” – a reference to comments made in a recent CNN interview – was turning into a “nightmare”, Vágó said.
The leader of the far-right Jobbik party, Gábor Vona, suggested that the solution would be to pull Hungary out of the EU, and called for a referendum on the issue. An official from the National Economy Ministry, Zoltán Cséfalvay, said debt-funded consumption and debt-driven growth lie at the root of the problem. The benefit of EU membership is not the subsidies on offer but access to the single market, he said.
With the government showing no sign of U-turning on its flagship “flat tax” policy, where income tax is 16 per cent for all wage earners regardless of salary, a pot pourri of measures has been introduced to fill the hole it blew in the budget when introduced last year. The 2013 budget reflects the continued shift toward taxing consumption exemplified by the EU’s highest rate of VAT at 27 per cent. Additional revenue raisers in the budget include:
– HUF 130 billion (EUR 454.92 million) – new financial transaction tax
– HUF 44 billion (EUR 153.86 million) – from a two forint per minute tax on phone calls and text messages, to be introduced in July this year
– HUF 40 billion (EUR 139.87 million) – increase from eight to 11 per cent in “Robin Hood” tax on energy companies, and extension to other utilities
– HUF 62.5 billion (EUR 218.48 million) – new tax on insurance products
Bank secrecy bid prompts suspicion on reserves
A clause in a government bill to amend the central bank act stipulates that data related to the size and composition of the Hungarian National Bank’s (MNB) currency and gold reserves should be kept secret “in the interests of central monetary and currency policy”. The bank’s governor is authorised to decide which figures should be released before all data enters the public domain after ten years.
This provision caused business news website mfor.hu to echo recent suspicions voiced by opposition politicians that the government plans to access the reserves, currently EUR 35.5 billion. The six-year term of the current central bank governor András Simor expires in the first half of next year, whereupon the President of the Republic must nominate a replacement for Parliament to vote on. The website saw this as potentially “laying the groundwork” for a “new era” at the central bank.
However, an analyst cited online by the financial newspaper Világazdaság under the title “Is the government bidding for the reserves?” attached no great significance to the passage in the amendment bill. Peter Attard Montalto of Nomura Holdings told the paper he saw the clause as part of a necessary clarification of the ambit of the bank’s leadership. András Oszlay, a senior analyst at Takarékbank in Budapest, told this newspaper that it is typical for central banks to keep the composition, but not the size, of their official reserves secret.