Finance Minister Mihaly Varga – Photo: Facebook

Finance Minister: Budget must adapt to economic environment

Mihaly Varga, the finance minister, has said Hungary's economy is expected to grow by 3-4 percent this year, and tax policy would underpin growth.

Varga said sustainable growth was only viable if there was a balanced economy.

In a lecture given at Karoli University in Budapest on Thursday, he noted a recent debate concerning whether fiscal policy was “tight enough”, and said that certain programmes that were already under way would suffer and result in serious social harm were budgetary resources to be withdrawn.

Whereas during the 2008 crisis, the government at the time stripped one month’s salary from the public sector and a month’s pension from the elderly, the current Fidesz government did not “retreat” when the going got tough. He cited the policy of creating one million jobs over a decade having resulted in, among other things, a more stable and sustainable pension system.

Also, the lowest corporate tax rate in Europe and the third lowest personal tax rate had a serious “whitening effect” on the economy, he said.

Regarding the budget deficit, Varga said achieving a shortfall of below 3 percent appeared to be a challenge, and the deficit last year was likely to come in higher than planned once final data are available, one reason being higher interest paid on Hungarian state debt and another being the increase in energy prices.

But local councils were not indebted and their finances generally in a healthy state, though energy prices had also weighed on localities, he said, noting that between 2011 and 2013, the state took over debts of 1,300 billion from local councils and tightened borrowing.

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