Change in the budget and general government debt on the basis of data reported

On 2 April 2013 the Hungarian Central Statistical Office (KSH) published revenue and expenditure data of the central government sector for Q4 2012 and the entire year of 2012.

In light of the statistics reported to the European Union on 29 March 2013 within the framework of the Excessive Deficit Procedure (EDP), the deficit of the central government sector was HUF 556.7bn 2 percent of GDP.

Source: Eurostat, Hungarian Central Statistical Office (KSH)

Without extraordinary measures, general government fiscal deficit would have amounted to about 7 percent of GDP in 2010, as government sector debt swelled from 55.6 percent of GDP in 2002 to 80.2 percent by the end of 2010. Therefore, in 2010 the Orbán Government decided to make the creation of a stable economic environment the focal point of its economic policy, as an element essential for igniting growth. The much lower than anticipated deficit was the result of the Government’s consistent measures. Of these, the first Széll Kálmán Plan and in December 2011 a smaller economic package adjusting last year’s budget before it entered into effect were aimed at maintaining the deficit. The lower deficit figure has been the consequence of the Széll Kálmán Plan 2.0, the Convergence Programme of 2012, the mid-year expenditure freeze at ministries, the introduction of the telephone tax in summer as well of bringing forward the introduction of excise tax on tobacco products.

The KSH compiled and reported the data published in the EDP Report in accordance with methodology guidelines of the European System of Accounts (ESA95) for the Eurostat, the statistical office of the EU. The assessment of the government sector according to ESA methodology differs slightly from this. On that basis the revenues, expenditures and subsequent fiscal shortfall of the central government sector were HUF 13 147.8bn, HUF 13 741.2bn and HUF 593.4bn (2.1 percent of GDP), respectively. The two methods differ in the reckoning of swap transactions; while ESA considers interest expenses from swap transactions as financial transactions, the EDP Report books these as changes in derivative debt.

In light of these data, the deficit target of 2.7 percent projected for 2013 is expected to be met, and thus Hungary may stand a good chance of exiting the EDP, a process which has been ongoing for nine years now. A further proof of the viability of the 2013 deficit target is that the general government deficit-to-GDP ratio for 2012 was below 2.5 percent, the figure forecast by the European Commission in its General Government Data release in spring 2012.

Source: European Commission

In 2012, in comparison to 2011 revenues excluding the transfer of private pension fund assets, the revenues of the general government sector increased by 6.6 percent. If calculated in comparison to revenues of 2011 including private pension fund wealth, revenues decreased by 12.3 percent, in which figure the decline of other revenues (53 percent) played a large role. On the other hand, revenues in other categories were up by 6.5 percent; revenues from personal income tax increased by 10.1 percent and those from production and import taxes were up by 9.3 percent (with revenue growth of 10.3 percent from value added tax thereof). Another positive development has been that the level of expenditures in 2012 was 0.6 percent below that of 2011. The decrease was mainly registered concerning expenditures on employee income (1.4 percent) and other expenditures (8.8 percent).

In Q4 2012 revenues and expenditures of the general government sector were HUF 3611.8bn and HUF 3778.3bn, respectively. Thus in the fourth quarter the shortfall was HUF 166.6bn corresponding to 2.3 percent of GDP of Q4 2012. Compared to the corresponding period of 2011, revenues in Q4 2012 increased by 11.6 percent, which was the result, to a large extent, of 17.7 percent higher revenues regarding production and import taxes and of the 22.1 percent increase with regard to other revenues (primarily as a consequence of EU revenues). Revenues from personal income tax and social security contributions were up by 5.0 percent and 1.7 percent, respectively.

According to data compiled by the National Bank of Hungary, general government sector debt totalled HUF 22 381bn or 79.2 percent of GDP at the end of 2012. In 2013 the downward trend of the government debt-to-GDP ratio will continue, and according to Government expectations the sector’s debt will be 77.8 percent by the end of 2013.

Source: KSH

The projection of the National Bank of Hungary in February 2013 predicts a sustainable path for the gross government debt-to-GDP ratio, forecasting that this figure may decline from about 79 percent at the end of 2012 to approximately 66 percent in fifteen years. This projected outlook is similar to the debt path of the European Commission analysis published in autumn 2012.

(Ministry for National Economy)