The government will be faced with deciding whether to devote these savings purely to tax cuts in 2018 or whether other areas such as wages, investments and reductions to the public debt should be points of consideration. Whatever the case, a decision must be made in spring of next year, Varga insisted. He added that next year the extent of the reduction to the public debt would be smaller on the back of tax cuts and spending on investments.

The minister flagged a guarantee that operational spending would flatline, and revenue and expenditure would be balanced. However, given the country’s development and investment spending, it will not be possible to achieve a balanced budget according to European Union accounting rules, he added.

Varga said the government had so far focused on consolidation, reducing the budget deficit and creating stability.  But now the emphasis must be placed on ensuring sustainable and faster growth. The government must respond to reports of labour shortages from all sectors of the economy, he said.

The 2018 general election would also be taken into consideration when drafting next year’s budget, he added. So next year the budget gap will actually rise to 2.4% of GDP from 2% this year, he said. Further, projected deficit for 2018 would be raised to 1.8% in Hungary’s updated Convergence Programme, which must be submitted to Brussels by the end of April, from 1.6% in the previous update submitted a year earlier.

The deficit will then decline in subsequent years, Varga said. As long as economic growth is above 3% and the fiscal deficit is below 2.5%, the public debt as a percentage of GDP will automatically fall because of today’s lower interest rates.

Varga acknowledged a “professional dispute” with Eurostat over how to account the loans of the state-owned Magyar Eximbank that could impact the level of public debt. “We’ll weigh the possibilities when a decision is taken ... it’s worth concentrating on consultations first,” he added.

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