Page 67 - CE Outlook Regions 2022

Mihaly Varga.

The 2022 budget was drafted with a 5.9% deficit target despite
buoyant growth, The additional fiscal space generated by robust
growth in revenues is set to be utilised for new expansionary
measures as the government is facing a tight election race.
These include the full reintroduction of the 13th monthly pension,
the abolition of the vocational training contribution, an additional
2.5pp cut to employers’ social contributions, and a service benefit
for military personnel.

The budgetary impact of the planned refund of income tax to
families, which will take place in early 2022, is of more than 1% of
GDP but will have a deficit-increasing impact in 2021 in line with
accrual recording.

Other discretionary measures in 2021 include a subsidised loan
programme for SMEs, a temporary reduction in the local business

tax, support for home buying and renovation and a reduced VAT
rate on newly built houses. Public investment is also set to
accelerate markedly.

The first sign of the government stepping on the brakes came just
weeks after the release of the November budget deficit data as
the finance ministry announced the deferral of HUF350bn worth
of state investments to boost reserves.

Amendments to this year's budget show the state debt ratio
falling to 79.9% at end-2021.

The National Bank expects the debt-to-GDP ratio, even with the

September issuance of foreign currency-denominated bonds, to
decline from 80.4% of 2020 to 79.6% by the end of 2021 before
falling close to 76% by the end of the forecast horizon, mainly
due to a significant rise in nominal GDP.

The European Commission’s own debt trajectory shows similar
patterns, as Hungary’s state debt is slated to fall from 79.2% in
2021 to 77.2% in 2022 and 76.4% in 2022

4.4 Budget and debt - Latvia

Government spending is expected to grow over the coming years on
account of both using the available fiscal space (for instance, for the

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