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Mihaly Varga: The budget must adapt to the economic environment

Mihaly Varga: The budget must adapt to the economic environment

The Finance Minister said at the Károlyi Free University lecture on Thursday evening in Budapest that the budget must adapt to the economic environment, as it is the economy that determines the performance of the budget.

This year there will be growth in the Hungarian economy, the debate is about its rate, and the government expects a growth of 3-4 percent, said Mihaly Varga at the Károly Gaspar Reform University educational program series. Growth can also be helped by tax policy tools, he added.

He explained that the Hungarian budget had adapted well in recent years: when economic growth was greater, it built reserves, and when the situation was more difficult, it financed. He pointed out that the crisis caused by Covid was three times stronger than the global crisis of 2008-2009, “We did not have to resort to the International Monetary Fund, we were able to finance it with our financial and monetary means.”

The Minister of Finance stressed that he does not believe that long-term growth is realistic without balance. He added that there is a need for sustainable growth that depends on the state of economic balance.

The Minister of Finance said that if the economy is not performing well, it is not possible to keep the budget under control, noting that the debate over whether “the budget is tight enough” has begun recently. In this regard, he also pointed out that there are many developments that the budget cannot withdraw from, because that may cause serious social damage. He pointed out that during the 2008 crisis, the government's response at the time was to take a month's salary from public sector workers and a month's pension from the elderly.

He stressed that there are results that should not be undone, citing employment as an example. As he said, the number of employed people has increased by one million people in ten years, which is “a serious consequence for the Hungarian economy.” He continued: The result of this, among other things, is that the retirement system has become more stable, and according to experts from the Organization for Economic Co-operation and Development (OECD), it will not need major restructuring during the next 10-15 years. , and will be able to finance itself.

Regarding tax policy, he said: The government follows a policy of collecting the necessary revenues for long-term societal spending from consumption taxes, while taxes on work and income are reduced. He added that this is why Hungary has the lowest corporate tax rate of 9 percent in Europe and the third lowest personal income tax rate of 15 percent. As a result, he noted, a significant “whitening effect” began in the economy, which is also visible in OECD reports.

He addressed the criticism that the general sales tax is higher in Hungary, but at the same time he described the Hungarian tax system as special because it supports childbearing and raising children through family policy measures and helps saving through tax incentives. He cited government securities as an example.

Regarding the budget deficit, he stated that a “deficit trajectory” of less than 3 percent appeared to be a challenge that “may need to be addressed.” He also announced: Although we still have to wait for the final data, it can be seen that the deficit in 2023 was higher than planned. One reason for this is the high interest rate of the Hungarian state, and the other is high energy prices.

Speaking about local governments, he stressed that Hungarian local governments are not in debt and are in good shape, although energy prices have also affected localities. He noted that between 2011 and 2013, the country took on more than 1,300 billion in debt from local governments and tightened borrowing.

He also spoke about the capital's unwillingness to fulfill its legal obligations and failure to pay the solidarity contribution tax. The Finance Minister indicated that the case is before the court, where the government is fighting to obtain the 58 billion HUF that the capital should have been paid.

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