Economy 5 January 2017, 9:00am

Hungarian state bulged with money

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The balance of Hungary’s government sector was in surplus by HUF 287.1 billion in the third quarter of 2016, which was equivalent to 3.3% of GDP. This is unprecedented. Hungary has never posted surplus in this period, let alone this giant surplus. The four-quarter trailing average of the budget shows 0.2% of GDP surplus at the end of Q3. This is no surprising as the cabinet has decided on major fiscal stimulus over the last few weeks.

Humungous surplus

Q3 data for the general government sector published by the Central Statistical Office (KSH) today show some amazing numbers:

The balance of the government sector was in surplus by HUF 287.1 billion, which was equivalent to 3.3% of GDP. This was an improvement of HUF 415.4 billion, or 4.8 percentage points as a proportion of GDP, compared to a year earlier.
Revenues were up by HUF 256.6 billion or 6.7%.
Expenditures were HUF 158.8 billion (4.0%) lower than a year earlier.

According to our database, the general government sector never had surplus before.

Details reveal that state expenditure declined by HUF 160 bn yr/yr in the third quarter. The biggest “savings" were achieved on gross fixed capital formation (investment expenditures): this item fell to HUF 293 bn in Q316 from HUF 500 bn in Q315, mainly due to the completion of EU programmes at the end of 2015. Interest expenditures came in HUF 20 bn lower, whereas compensation of employees rose HUF 80 bn.

Meanwhile, revenues increased by HUF 256.6 bn yr/yr in Q3 and in the July-October period revenues reached HUF 4,095 billion. Current taxes on income and wealth rose HUF 77 bn, social contributions went up HUF 64 bn and other revenues jumped HUF 120 bn.

Budget fit as a fiddle

The Q3 data pushed the four-quarter trailing average to positive territory (+0.2% of GDP), i.e. the cabinet had a tremendous manoeuvring room in the last quarter of 2016. In view of this, the reduction of employers’ social contribution and the corporate income tax is no surprise and neither is the extravagant government spending at the end of last year.

Considering that the cabinet targeted 2.1-2.3% of GDP ESA gap for last year, the Q4 balance could show 10-11% of GDP deficit and it would still not be a problem.