According to the Hungarian government’s calculations, the economy expanded by 6.4 per cent in 2021, and a growth of well over 5 per cent is expected this year, which allows the government to continue the tax cuts it has implemented in the past ten years, the finance minister told public radio.

As an example, Mihaly Varga mentioned that starting from this year, under 25s will receive a tax relief, similar to mothers raising four or more children.

He stressed that the reimbursement of personal income taxes paid in 2021 will be a big help for families this year, while a further significant reduction in social the contribution tax will be make life easier for employers.

The finance minister recalled that the Hungarian economy was on a very good growth path before the outbreak of the coronavirus pandemic, producing the biggest growth rate in the European Union in 2019. Although this trend was halted by the pandemic, the Hungarian economy was fortunately able to return to its previous path of growth relatively swiftly, Hungary’s finance minister said.

Mr Varga emphasized that if financial stability strengthens and investor sentiment improves, this will help economic growth in the longer term.

The measures taken during the coronavirus pandemic will also help Hungarian fiscal policy to return to a balanced path as soon as possible, the minister added.

Mr Varga also mentioned that Hungary’s debt-to-GDP ratio is expected to fall in 2021 after an increase in debt in 2020, with the final figures only becoming available in February. He noted that the average debt level in Europe has jumped from 80 per cent to over 100 per cent, while in Hungary it has risen from 65 per cent to 80 per cent.

The minister said that the government was running a disciplined, tight budget. This is why it decided to increase reserves at the end of last year, and saw an opportunity to reschedule the investments planned for this year. At the end of last year, the cabinet introduced a “350-billion-forint spending cap, so the ministries have already spent that much less,” he said, adding that the government also saw an opportunity to implement investments over a longer time horizon, as this year Hungary will reach a level higher than the EU’s investment rate anyway.

Mr Varga stressed that the cabinet does not see the need for further spending cuts, and the steps taken so far will decrease the expenditure side of this year’s budget by 755 billion forints (2.1 billion euros), which creates a chance to achieve a deficit in 2022 that is one percentage point lower than the planned 5.9 per cent.

After 15 February the fate of the 480-forint (1.43 euros) fuel price cap will depend on the future of global oil prices, which cannot be predicted at the moment, the minister said.

Mr Varga confirmed that coverage for the development funds of the EU’s recovery package are available in the budget, and even if Hungary cannot reach an agreement with the European Commission, these programmes will go ahead anyway.

The government representative said the Commission was behaving highly irresponsibly when “it’s considerations about releasing the recovery funds to Poland and Hungary are being visibly driven by political motivations.”

Hungary has also given its approval to making the loans of the recovery fund available, Mr Varga said, adding that Hungary is entitled to these funds. The minister stressed that monetary policy has to take the most important decisions on inflation, and the Monetary Council has taken steps since mid-summer to try and moderate inflationary changes.

Obviously, this implies a higher interest rate, which will lead to higher government spending to finance the government bonds as well as the country’s public debt, Mr Varga concluded.