2015 budget slashes social spending across the board

November 3, 2014

budget

Minister for National Economy Mihály Varga delivered the 2015 budget to Parliament President László Köver on Friday.  Speaking to reporters, Varga said the budget “protected” the decrease in household utility costs representing an annual saving of HUF 150,000 (USD 600) per household, and that the banks would repay some HUF 1000 billion  (USD 4 billion) “taken unethically” from debtors.

The government projects GDP growth of 2.5 percent in 2015 and a 2.6 percent increase in household consumption.  The deficit is expected to be 2.4 percent, well under the 3 percent limit stipulated by the terms of Hungary’s convergence agreement with the EU.  The budget is projecting inflation of 1.8 percent.  Sectoral taxes on banks are to remain.  Total state debt is to be “further decreased” to 75.4 percent of GDP. (In 2014 it increased to 80 percent due in large part to the weakening of the forint).

Critics point out that the budget provides for some HUF 340 billion in across the board cuts to social spending.

Köver said that debate of the budget would begin the week of November 17 and that parliament would vote on it on December 15.

According to the government, the budget provides for the following:

  • Over HUF 30 billion (USD 750,000) in premiums and related payroll taxes for national tax and duty authority employees.
  • A HUF 25,100 billion (USD 1 billion) reduction in state debt based on euro, Swiss franc and US dollar exchange rates of HUF 310, HUF 255 and HUF 230 respectively.
  • HUF 227 billion (USD 915 million) for the Office of the Prime Minister and over a dozen related bodies. This is nearly seven times more than the HUF 34 billion (USD 137 million) budgeted this year.
  • HUF 21 billion (USD 84 million) is budgeted for Parliament, HUF 75 million more than in 2014.
  • HUF 2.3 billion (USD 9.3 million) is budgeted for the Office of the President, HUF 190 million more than 2014.
  • In accordance with European Commission directives companies engaged in the production of building materials, ceramics and glass will be able to reclaim energy taxes.
  • Over HUF 250 billion (USD 1 billion) is budgeted for the Hungarian military, a HUF 9 billion (USD 3.6 million) increase over 2014.  Of this, HUF 4 billion (USD 16 million) is to be contributed towards the cost of NATO and HUF 350 million towards the EU mutual defense fund.
  • HUF 524 billion (USD 2.1 billion) for the Klebelsberg Institutional Maintenance Center (Klik) in addition to projected revenues of HUF 12 billion (USD 48 million), for a total increase over 2014 of HUF 50 billion (USD 200 million).  Of this, HUF 53 billion (US 214 million) is to be spent on materials and HUF 482 billion (USD 1.86 billion) on wages, payroll taxes and premiums.
  • In addition to projected revenue of HUF 283 billion, universities and colleges are to receive HUF 143 billion (USD 577 million) in state supports.
  • An additional HUF 14 billion (USD 56 million) for the police and HUF 1 billion (USD 4 million) for the National Disaster Management Directorate.
  •  A total of HUF 58 billion (USD 234 million) for feeding children, representing an increase of HUF 5 billion (USD 17.4 million) over 2014.

Critics of the budget point out that spending on social programs is to decrease HUF 340 billion even as tax revenues increase HUF 280 billion.  They also point out that

  • Projected GDP growth of 2.5 percent exceeds the predictions of most experts.
  • Projected inflation of 1.8 percent is optimistic in light of the 2 percent weakening of the forint projected by the National Bank.
  • Public assistance and disability aid have been cut HUF 70 billion (USD 282 million) and HUF 100 billion (US 403 million), respectively.
  • A much-touted HUF 6 billion (USD 24 million) increase in family tax credits is offset by a HUF 20 billion (USD 77.5 million) decrease in benefits.
  • HUF 60 billion (USD 242 million) more is budgeted for projects in 2015 than in 2014, of which HUF 50 billion (USD 200 million) is to be used for stadium construction, and HUF 5 billion (USD 20 million) for the renovation of the building in the Castle District that is to become the new Office for the Prime Minister.
  • HUF 50 billion (USD 200 million) is to be paid to state electricity wholesale trader MVM as compensation for losses arising from government-mandated decreases to household electricity and gas costs.
  • Income and payroll taxes are to increase HUF 280 billion (USD 1.1 billion) in 2015.

Some HUF 25 billion (US 100 million) was to have been raised from a tax on the internet but the proposal has been temporarily shelved after large street protests.

Economist Mária Zita Petschning told ATV this morning that in her professional opinion the proposed budget was “bad” because “it does not strengthen the foundations for long-term growth”.  She points out that it provides for 5 percent less to be spent on higher education in nominal terms than in 2013, a year that was generally considered to be one of austerity.  “This will not improve the competitiveness of Hungarian workers.”

She says similar cuts in health care, social expenditures, unemployment benefits and disability aid are likely to exacerbate social tensions already running high as a result of growing income disparity.

References:

http://www.atv.hu/belfold/ 20141030-2015-a-banki- elszamoltatas-koltsegvetese-lesz

http://www.168ora.hu/buxa/kozmunka-foglalkoztatas-budzse-131775.html

http://www.atv.hu/videok/video-20141103-nullas-koltsegvetest-akar-a-kormany