The Council recommends that Hungary take measures to ensure that the nominal growth of net primary government expenditure does not exceed 2.8% in 2018, representing an annual structural adjustment of 1% of GDP.

This will put Hungary on an appropriate adjustment path towards its medium-term objective, the Council said. Any windfall gains should be used for deficit reduction, and budgetary consolidation measures should secure a lasting improvement.

The Council set a deadline of October 15, 2018 for Hungary to report on action taken. The Council issued a similar recommendation to Romania after establishing that both countries are responsible for significant deviations from their medium-term budgetary objectives (MTOs), as agreed under the Stability and Growth Pact, the EU’s fiscal rulebook.

The Council established that in 2017 the growth of Hungary’s government expenditure was well above the expenditure benchmark set by the Council in July 2016, and Hungary’s structural balance deteriorated to -3.1% of GDP, 1.6 percentage points of GDP away from its -1.5% of GDP mediumterm objective.

The data are from the Commission’s spring 2018 economic forecast and 2017 budget data.

Both indicators suggest a significant budgetary deviation, the Council said. The medium-term objective (MTO) and the significant deviation procedure are both part of the pact’s preventive arm.

The focus of budgetary surveillance is on structural balances, i.e. budgetary balances corrected for cyclical, one-off and temporary factors.