Wages were raised and taxes were cut significantly in 2017; the pace of economic growth has accelerated and it is having an impact on families, enterprises and every Hungarian, Minister of Finance Mihály Varga said at the parliamentary debate concerning the bill on the execution and discharge of the state budget.

Last year has been characterized by a prudent fiscal policy, stable public finances and macro-economic processes which were in line with prior estimates, he noted.

2017 was the first year when, as a result of the six-year agreement on wage hikes and tax cuts, concluded by employer and employee advocacy organizations, earnings increased substantially, the number of jobs was up and the pace of economic growth accelerated, Mihály Varga said. Naysayers who had claimed that minimum wage growth of 15 per cent and 25 percent would reduce labour demand have been proven wrong, he added.

The six-year agreement has added 1 percent to Hungary’s GDP growth, the rate of which, at 4.1 percent, was well above the EU average last year.  In the budget bill, the fiscal deficit had initially been estimated at 3.1 percent of GDP. However, the ESA deficit has turned out to be 2.2 percent in the end.

Photo: Ministry of Finance

“I must be self-critical and admit that we have underestimated how strong the growth momentum was,” he said, adding that the budget had been drafted in the spring and the wage agreement was signed only in November.

The government debt-to-GDP ratio has declined to 71.3 percent in 2017, and it fell from 75.9 percent in 2016 to 73.3 percent last year if Eximbank debt is taken into account. Hungary nonetheless contests the Eurostat methodology which claims that Eximbank debt must be regarded as a liability in the state budget.

In 2017, almost every economic sector has contributed to overall growth. The sector with the largest growth rate was construction, where the volume of output was driven – besides dynamic growth in the volume of private sector-, state- and self-government-funded projects – by funds from the Housing Subsidy Programme. The volume of projects completed in 2017 totalled HUF 8500bn (EUR 26bn), the Minister of Finance announced.

The other main driver of growth was household consumption, the volume of which increased by 4.7 percent. This segment was bolstered by job growth and targeted tax cuts, he said.

In 2017, the number of people in employment exceeded 4.4 million, while the corresponding figure was less than 3.8 million back in 2010. By the end of last year, the unemployment rate declined below the 4.2 percent mark.

The earnings of employees have also risen in 2017. Average gross monthly earnings edged up to HUF 297 000 within the national economy. Net earnings, which include family tax allowances, were up by 10.1 percent.

The rate of import growth has exceeded that of export growth but as the foreign trade surplus continues to be above EUR 8bn, there is no reason for concern, he said.

Photo: Ministry of Finance

The share of forex debt within the total volume of state debt declined substantially, to 26 percent, and the share of debt owned by non-residents fell to 37 percent. Eight years ago, he pointed out, the share of forex debt had been above 50 percent.

Pension expenditures rose by 2.4 percent year-on-year: in the month of November 2017 every pensioner received, for the first time ever in Hungary’s history, a pension premium.

The priorities of the Government continued to be the improvement of conditions for enterprises, the bolstering of company competitiveness and increasing economic transparency.

In line with the wage agreement, the minimum wage and the guaranteed minimum wage have been raised, and the rate of social contribution tax and corporate income tax has been reduced.

The cash-flow deficit of the general government budget and the central sub sector came to HUF 1314bn and HUF 1833bn, respectively, Mihály Varga said. HUF 155bn have been disbursed to cover costs related to the migration crisis.

In 2017, the amount of EU funds disbursed for beneficiaries totalled HUF 2571bn, and thus the pre-payment of funds related to the programming period 2014-2020 has been practically completed. The expenditures of the Health Insurance Fund totalled HUF 2262bn in 2017, of which more than 27 percent were provided as cash benefits and some 72 percent as in-kind benefits.

(Ministry of Finance)