Hungary's government sees economic growth accelerating to over 4 percent in the next two years, the Economy Ministry said on Tuesday, after unveiling a batch of stimulus measures as Prime Minister Viktor Orban eyes elections in 2018. The sharp upgrades in the growth outlook follow an agreement with private sector employers on big hikes in the minimum wage for the next two years in return for cuts in payroll taxes and a reduction in the corporate tax to a flat 9 percent.
"The agreement substantially affects the macroeconomic developments of the coming years, putting the Hungarian economy on a higher growth trajectory," the ministry said, adding that the main driver of growth would be higher consumption. Orban's cabinet sees economic growth rising to 4.1 percent next year and 4.3 percent in 2018, when elections are due, the Economy Ministry said, up from its previous 3.1 and 3.4 percent projections.
Orban, whose ruling right-wing Fidesz party has a firm lead in opinion polls, had embarked on an independent policy course shortly after coming to power in 2010. He had imposed big windfall taxes on banks, energy providers, telecoms and retail firms, in moves that upset investors. He also nationalised private pension savings worth 3 trillion forints ($10 billion).
These measures have helped rein in the country's budget deficit, however, and this year the three big international rating agencies have all raised the country to investment grade after five years of "junk" status. After hovering around zero for years, inflation is seen at 1.6 percent next year, rising to 3.1 percent by 2018. The Economy Ministry said the budget deficit would remain below 3 percent of gross domestic product next year and decline in the coming years.
The government expects the level of the bank tax to remain unchanged from 2017 levels through 2020, it said. The 2017 budget is based on a projection of revenues worth 66.5 billion forints from the bank levy, which was lowered this year following an agreement between Orban's government and the local bank sector. The government has said that banks that substantially boost lending to companies would get a rebate from another tax levied on financial transactions.