Finance Minister: Steady economic growth rate expected next year

Presenting the budget bill in parliament on Wednesday, Mihály Varga, the finance minister, said next year’s budget would ensure steady economic growth.

Within the pursuit of a disciplined fiscal policy in 2019, more money would be available for family support, measures to address demographic problems, job creation, retaining the workforce, preserving the real value of pensions, developing the economy, and protecting Hungary’s borders, he said.

The government has secured the resources for this spending thanks to growth that has outstripped the EU average since 2013, Varga added.

It expects economic growth of 4.1 percent next year and it calculates with annual inflation of 2.7 percent, the minister said, adding that plans are for a lower deficit target of 1.8 percent.

When drafting the budget, the cabinet took into consideration developments in the global economy, which could turn sour, so reserves have been increased accordingly, Varga said. In 2019, both the general reserves and a safety reserve linked to meeting the deficit target will increase by 1.5 times compared with this year, he added.

The public debt-to-GDP ratio will continue to decline, falling to 69.6 percent according to EU methodology. Deficit spending will only go towards developments and investments, he said.

Varga said spending will increase in several areas. Education spending will increase by 15 billion forints while and extra 101 billion forints will be pumped into health care. The budget for public security and defence will increase by 156 billion forints, he said, noting additional resources were needed to combat migration and the associated risk of terrorism.

Referring to ongoing reforms to the armed forces, Varga said spending in relation to GDP on defence would double by 2024 compared with this year.

In 2019, the money for various family support programmes will exceed 2,000 billion forints. Further, tax allowances for families with two children will increase to 40,000 forints each month.

Next year, VAT on all types of milk will drop to 5 percent. Also, up to 20,000 forints worth of bank transfers for household bills will be exempted from the financial transaction, he said.

Social contributions currently at 19.5 percent may be reduced by another 2 percentage points, depending on real earnings.

To make it easier to employ older workers, retirement income will not be subject to social contributions from 2019, he added.

Corporation tax cuts linked to investments will be broadened next year. Businesses will be able to deduct up to 10 billion forints a year from their tax base for profit reserves dedicated to investments, up from 500 million forints at present.

The tax threshold for small businesses will rise from 500 million forints to 1 billion. As long as income does not exceed 3 billion forints, the taxpayer will remain in that category.

Next year, the tax on culture and accidents tax will be abolished alongside health-care contributions, he said. The tax on third-party vehicle insurance will also drop, he added.

There will be a further 5 percent increase in the salaries of soldiers and law enforcement employees. Health-care professionals can expect an additional 8 percent salary increase from next November, Varga said.

Varga said that almost 2,000 billion forints will be paid out from EU funds next year. With a view to boosting the competitiveness of Hungary’s economy, the government will invest 4,000 billion forints in development projects, he added.

The pension insurance fund will remain balanced and the government will allocate reserves of 24.7 billion forints accordingly, the minister said.