Gabor Kovacs

In January, not only VAT revenues were below target, but so were last year's poor. Budget revenues related to wages jumped – but only because of the salary increases introduced by the end of last year. EU programs have improved the balance significantly – but only because almost no tenders have been issued so far. The black soup of public debt financing is just coming.

In January 2024, the central public finance subsystem closed with a surplus of HUF 54.4 billion, the Ministry of Finance said in its report. Within this, the central budget showed a deficit of HUF 37.4 billion, separate state funds showed a surplus of HUF 41.6 billion, and social security financial funds (i.e. the Health and Pension Insurance Fund) showed a surplus of HUF 50.2 billion.

The January surplus could even be evaluated as positive, but the opposite is true.

On the one hand, the surplus in January is usually much higher, and the surplus of 54 billion cannot be considered high at all. Especially since January is historically the month of the first and last surplus, and only from February does the deficit accumulate. On the other side

Looking at the detailed numbers, this year's budget outlook is not rosy, to say the least.

The VAT gap will be large this year as well

In terms of revenue, it is worrying that the general sales tax and excise tax received was lower than in January 2023. The deficit compared to last year amounts to HUF 41 billion in value-added tax and HUF 15 billion in excise duties. The main reason for the collapse of the 2023 budget was that the budget was planned with approximately 8,000 billion HUF in VAT revenue, but only a meager amount of 7,000 billion HUF was received. The 2024 budget plans VAT revenues of HUF 8.6 billion

This year, 1.6 thousand billion HUFs should be received in VAT compared to last year. Compared to this, VAT revenues were already lagging in January compared to 2023.

So January has been a traditionally strong month in terms of VAT revenues, thanks to higher household consumption in December.

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It is true that consumption was still weak in December, but it is expected to rebound this year in parallel with rising real profits. At the same time, we cannot rule out that consumption – and value-added tax revenues – will be able to overcome last year's decline this year, or even grow beyond that.

In other words, it can be assumed that there will be a significant gap in VAT revenue this year as well.

Union money came in plentiful, but there was almost no payment

The budget balance for January was significantly strengthened through European Union programmes. With the EU releasing part of the frozen funds, revenues worth 225 billion Hungarian forints were obtained in January. Meanwhile, the Hungarian state barely saw the announcement of EU tenders, so EU program expenditures amounted to only 80 billion Hungarian forints.

The government has so far refrained from announcing EU programmes, so – despite the government's claim to the contrary – the freeze in EU subsidies has not negatively affected the budget: it is true that little EU support has flowed into the budget, but the budget has also made few payments with Relevant EU requests.

Last January, 9.1% of the EU's planned revenues for the entire year were obtained, while only 2.2% of the annual spending plan was implemented.

The balance of EU programs numerically improved the budget balance by 145 billion HUF – this effectively puts the surplus of 54 billion HUF in brackets.

As the government prepares to accelerate EU tenders, this balancing effect will not take effect for the rest of the year.

Salary increase at the beginning of the year at the end of the year

In January, health insurance and pension funds closed with a surplus – with revenues increasing significantly, thanks to an increase in taxable income. In other words, because profits increased.

Incidentally, this also led to a significant increase in personal income tax revenues, 430 billion forints were received in January, while in the first month of 2023 it was only 372 billion forints.

There is certainly some distortion here as the increase in the minimum wage and the guaranteed minimum wage already in December 2023 drove profits higher. Simply

Part of the wage increases at the start of 2024 already occurred in December, so those affected already received increased wages in January, and the general charge on already higher wages flowed into the budget in January.

Which also beautified the income side in January.

However, as a result of the above, the increase in profits in January will be more restricted, which will lead to a more moderate increase in budget revenues in February.

Financing the national debt is very expensive

Regarding public debt financing, net interest expenditure in January amounted to HUF 254.8 billion as a balance of income and expenditure, which is HUF 96.1 billion more than in the previous year, “due to the different path of interest payments during the year, and the different returns and the financing structure of the year can be explained the previous”.

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The situation will only get worse in the coming months. Government securities that track inflation pay a yield. In the first quarter, the state will pay about HUF 860 billion in interest and HUF 105 billion in expiring capital for existing Hungarian government preferred paper (PMÁP) shares. But this is not the total amount: this year, a total of about 1,200 billion is expected to be paid to the state treasury related to the PMÁP programme.

Financing public debt in a high interest rate environment will constitute a significant burden on the budget this year, and even in the following years.

2023 was worse than crap

Overall, based on the processes that took place in January, it has become abundantly clear that the 2024 budget is unworkable – at least without very serious cuts.

However, there is no intention to do so. First, National Economy Minister Marton Nagy spoke about the planned deficit target of 2.9% of GDP for this year. Later, Finance Minister Mihajal Varga also spoke about the fact that reaching a 2.9% deficit would be a two-year project, that is, realistic only in 2025.

If so, according to the current situation, the target is getting further and further away, if the 2023 deficit is not only higher than the target set by law, but also higher than the target that was unofficially raised and then raised again.

There is also a question about whether the government will develop a new budget and present it to the House of Representatives, as it is impossible to implement the 2024 budget and there is no intention to do so.