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Lawmakers approved the 2020 budget with a vote of 127 for, 58 against and no abstentions. The budget targets revenue of 21,426.0 billion forints and expenditures of 21,793.0 billion forints, producing a deficit of 367.0 billion forints. The 2020 deficit target is less than half of the 998.4 billion forint target for 2019. The budget targets a deficit of 1% of GDP, calculated according to the European Union’s accrual-based accounting methodology. The target is below the target of 1.5% of GDP in Hungary’s updated Convergence Programme submitted to Brussels in April.
Hungary’s year-end public debt level, relative to GDP, is set to fall from 68.6% targeted for 2019 to 65.5% for 2020. The budget sets aside 488 billion forint in reserves, including 378 billion forints in the National Protection Fund, and 110 billion forints for “extraordinary government measures”, more than double the total of 225 billion forints of reserves in the 2019 budget. The cost of debt maintenance targeted in the budget is 1,078.5 billion forints. The budget assumes GDP growth of “around 4%” and consumer price inflation of 2.8%.
Meanwhile, lawmakers also approved tax changes earlier announced as part of expanded support for families and a package of tax cuts and growth incentives. The legislation makes mothers of four or more children exempt from personal income tax for life. It eliminates the Simplified Business Tax (EVA) from the start of next year, while at the same time lowering the Small Business Tax (KIVA) rate from 13% to 12%. The KIVA rate is above the 9% corporate tax rate, but KIVA companies enjoy a number of exemptions.
The legislation extends the opportunity to pay the Simplified Contribution to Public Revenues (EKHO) to the employees of foreign sport organisations as well as Hungarian ones. Additionally, it makes allowances paid in the framework of sport diplomacy tax-exempt. The law also reduces the VAT rate for commercial accommodations from 18% to 5%. It also temporarily reduces the advertising tax rate to zero percent.
Speaking after the vote, Mihály Varga, the finance minister, said the budget’s adoption showed that the vast majority of lawmakers agreed to strengthening families, protecting economic achievements, maintaining the country’s security, and pursuing an economic policy based on tax cuts and wage increases.
The minister said the 2020 budget would channel more resources to all spending areas. Families with children and teachers are at the heart of budget measures and all necessary resources will be put towards implementing the family protection plan, he said. Next year, support for families will increase to almost 2,228 billion forints, or around two-and-a-half times the 2010 figure.
Varga noted that extra resources would be channeled to education, culture, leisure activities and tourism without endangering the deficit target of 1% of GDP or further reductions to the public debt.
The opposition Socialists said that all Hungarian economic indicators were worse than in neighbouring countries. Socialist MP Lajos Korózs singled out pensioners, saying that the gap between seniors and the younger generations would increase due to the government’s plans to raise wages by 8.5% while increasing pensions by only 2.8%. The purchasing power of pensions in Romania is higher than in Hungary, he said, adding that pensions worth below 100,000 forints (EUR 307) a month should be raised.