The government is in big trouble, and this is already being seen abroad

The Hungarian budget and fiscal policy received several criticisms this week, but it was mostly the country-specific recommendations of the European Commission that tore apart the work of the financial administration. From the outset, Brussels expects the extra profit tax to be phased out by 2024, but it would also require – like all other EU member states – to gradually phase out energy price support systems similar to utility reduction.

Commission analysts predict a high deficit of more than 4 percent of GDP for this year, and they also called the fact that the Orbán government is adopting the budget for the seventh time in the summer, when it is not yet possible to plan expenditures and revenues, as a factor of uncertainty. the Hungarian budget must be significantly reworked.

Viktor Zsiday, an investment specialist at Citadella Származtatt Befektétési Alap, spoke to Bloomberg about the vulnerability of Hungarian assets in this regard, saying that

investors are lured by high interest rates, but most of them can leave at any time if there is bad news, such as about the state of the budget.

This suggests that despite the appeal of high interest rates, investor confidence is fragile and could easily be shaken by negative developments in the budget. There may be a reason for that, because as Portfolio reported, the public budget deficit was at a record high in recent months, while the revenue side is also lagging behind the plans amended in December, especially in the case of VAT revenues.

As for Hungary’s fiscal situation, NatWest Markets strategist Eimear Daly explains that failure to meet deficit targets, falling tax revenues and overspending have created a budget hole of around $3 billion. He emphasizes that Hungary is in a vulnerable financing situation.

Daly also draws attention to the fact that the EU is concerned about Hungary’s budget management, noting that the European Commission pointed out shortcomings in budget planning and implementation, as well as criticized the ad hoc spending that aggravates the situation.

He points out that due to corruption and rule of law concerns, Brussels has frozen more than 30 billion euros worth of EU funds, which further increases the budgetary burden on Hungary.

In light of these challenges, Viktor Zsiday, an expert at Hold Alapkező, recommends that the cabinet turn to half the taxation of the rich. We presented the economist’s opinion in detail in this article.

Cover image: Shutterstock.