Hungary Needs Significant Deficit Cut For Euro Path, Magyar Says

Hungary needs to significantly narrow its budget deficit to make debt financing sustainable and to put the country on a path toward adopting the euro, Prime Minister Peter Magyar said.

The government is still finalizing its 2027 budget and medium-term fiscal outlook and plans to publish the draft this month, Magyar told a news conference in Budapest on Friday. Investors are awaiting details on how the cabinet will raise revenue and cut spending to deliver the fiscal consolidation needed to meet euro-entry criteria.

Hungarian bonds and the forint have rallied since Magyar ended Viktor Orban’s 16-year rule in a landslide election in April with a pledge to steer the country in the euro area. The goal is to meet euro criteria by 2030, including by reducing the budget deficit to 3% of gross domestic product from an estimated 7.5% shortfall this year.

Investors are focused on next year’s budget gap to assess the cabinet’s commitment to the euro time-table. The government may narrow the shortfall to between 5% and 5.5% of GDP next year, Citigroup Inc. economist Piotr Kalisz said in a Sept. 9 report.

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Magyar said the government won’t pursue austerity and will instead seek to eliminate wasteful spending to narrow the shortfall. He cautioned that his five-month-old administration won’t be able to address all of Hungary’s social needs at once, though he said the cash-strapped healthcare sector’s budget would rise by 500 billion forint in 2027.

To create savings, the government plans to terminate a $73 billion 35-year motorway concession agreement from April of next year, Transport Minister David Vitezy said. The cabinet plans to target other overpriced state contracts awarded under the previous government, Finance Minister Andras Karman said on Thursday.

Magyar also detailed a new wealth tax that will come into effect next year, which will impose a 1% levy on assets exceeding 1 billion forint and a 1.5% rate above 100 billion forint. Those trying to take their money abroad would be hit by a new exit tax, he said.

The Finance Ministry forecasts 200 billion forint in annual revenue from the wealth tax.