Government made record-breaking expenditures in December, eliminating first budget surplus in decades

January 24, 2017

Hungary nearly had its first budget surplus in modern times in 2016 but a massive wave of spending in the last month of the year resulted in a HUF 848 billion (USD 2.9 billion) budget deficit on the year, all so the government could boast 2 percent growth in GDP, reports napi.hu.

Newly released data from the Ministry of National Economy shows that the government dumped HUF 3.3 trillion (USD 11.6 billion), or some 10 percent of Hungary’s GDP, into the economy in December, growing the general government deficit by HUF 907.6 billion that month alone. The expenditure nearly doubled the HUF 1.7 trillion spent in November. As noted on napi.hu, the expenditure by itself could cover either the planned construction of two nuclear reactors for the Paks II program (for which Hungary took out a EUR 10 billion loan from a Russian bank), or the hosting of the 2024 Summer Olympics in Budapest. Budget laws permitted the government to spend HUF 17 trillion in 2016, a figure the government overshot by some HUF 2 trillion (USD 6.9 billion).

Government revenues soared in 2016 as HUF 18 trillion (USD 62 billion) came into state coffers, an increase of HUF 658 billion (USD 2.2 billion) from the previous year. Personal income tax revenues were up HUF 29 billion from 2015 at a total of HUF 1.7 trillion, while corporate tax revenues saw the most growth in 2016 with the government taking in HUF 683.1 billion, an increase of HUF 134.3 billion from 2015. However, these increases came not from a general uptick in corporate earnings in the country but from American company GE (General Electric) making a large excess tax payment as part of a tax optimization plan. Indeed, sales tax revenues increased by only HUF 4.6 billion from 2015.

As revenues increased, the government made cuts to social assistance programs: the National Family and Social Policy Fund, for example, freed up HUF 671 billion in 2016, a 4.2 percent decrease from the previous year. Spending on family allowances, public healthcare and early retirement also decreased. Meanwhile, spending on government assets increased to HUF 372 billion on the year, over 1 percent of GDP.

It is unknown why the government allowed the year to close with a deficit when it had, for the first time in memory, taken in more taxes than it had expended that year. The 20-page document released by the Ministry of National Economy did not elaborate on what compelled the government to undertake the massive last-minute spending, nor what kinds of economic or social advantages the decision might bring. HUF 50 billion reportedly went to both retirement benefits and capital increases for Hungary’s state-owned import/export bank Eximbank, and HUF 70 billion toward the country’s deteriorating hospitals. However, it is possible that the aim of the sudden money dump was to maintain the appearance of a growing economy.

Despite the massive expenditures in December, total expenditures for the year only outpaced 2015 by around HUF 269 billion. However, the government spent untold sums of EU development funds in 2015 as the funds’ expiration dates approached, inflating the year’s expenditures. In 2016, by contrast, a 23 percent decrease in expenditures was planned in response to the EU withholding substantial amounts of support.

The expenditure may have been facilitated by a legislative change in March 2016 which gave the Prime Minister’s Office executive power to make spending decisions without the approval of Parliament, allowing the government to spend money by decree. The goal of the law, according to its sponsor, Minister Overseeing the Office of the Prime Minister János Lázár, was to allow the government to use its discretion over budget surpluses at the end of the month. With December’s historic expenditure, the government achieved that goal and then some.