Hungary’s parliament has approved the 2026 state budget with a projected deficit target of 3.7% of GDP, a goal that analysts widely consider unsustainable given the country's current fiscal trajectory. The bill passed on June 17 with 133 votes in favour and 47 against, with no abstentions.

The budget targets a deficit of HUF4.2 trillion (€10.4bn), GDP growth of 4.1% and inflation at 3.6%. State debt is set to drop to 72.3% of GDP.

Market participants, credit rating agencies and independent analysts have raised red flags over the 2026 plan, warning that it rests on fragile assumptions and may face severe revisions, particularly with general elections due next year.

Since the regime change, election years have consistently seen a worsening of the fiscal balance. With Fidesz now heading into a closely contested race, the government is likely to roll out further spending measures or tax cuts to bolster voter support, steps that risk eroding the credibility of the 2026 fiscal plan and could necessitate tough corrections after the vote.

Hungary’s Fiscal Council, while formally approving the draft, raised concerns over the draft budget for 2026, warning that it rests on overly optimistic growth assumptions and contains multiple risks, including low fiscal reserves, ongoing uncertainty over EU funding, and potential fallout from the US-led trade war. It urged the government to significantly increase the budgetary reserve for extraordinary measures and adopt a more conservative approach to revenue and growth planning.

The credibility gap between budget targets and real fiscal outcomes has been growing. The government’s original 2025 deficit goal of 3.7% of GDP has already been revised upward to 4.1% and some projections suggest the actual shortfall could reach 4.8% by year-end.

This would question the viability of the 2026 deficit target as well. The widening gap comes as the economy continues to underperform: the government’s growth forecast for 2024 has already been slashed from 3.4% to 2.5%, and is now under further review, with analysts and international organisations expecting a rate closer to 1%.

Hungary's economic performance so far in 2025 remains among the weakest in the EU in 2025, below average growth in the EU27 and the Eurozone, the EC report showed.

The 2026 budget includes HUF192bn in general reserves, an amount many view as insufficient to offset mounting risks. Among these are the potential shortfall of EU funds, wage policy uncertainties, and questionable assumptions about tax revenues and growth. Furthermore, several expenditure items remain "open-ended," allowing the government discretion to increase spending during the year

Compounding the issue is a lack of transparency. Several budgetary adjustments have occurred through opaque mechanisms, including spending freezes and off-balance-sheet financing, making it difficult for external observers to assess the fiscal stance.

Meanwhile, the debt management agency has ramped up foreign-currency borrowing in its latest review of the financing plan to cover growing funding needs of the budget. Hungary has just issued $4bn in dollar-denominated bonds ($1.5bn in five-year notes, a $1bn 10-year tranche, and $1.5bn in bonds maturing in 2055) and could soon follow suit with new Panda bonds.

According to details, proceeds from personal income taxes (PIT) are expected to fall to HUF4.84 trillion compared with the HUF4.9 trillion planned for 2025.

The government’s family policy measures will leave a huge gap in the budget. Hailed as Europe’s largest tax cut, the government will grant lifelong exemption from PIT for mothers with two children of all ages, rolled out in phases from 2025 until 2029.

A PIT exemption for mothers raising two children will leave HUF320bn with taxpayers, while the doubling of the tax allowance for families raising children will add up to HUF290bn.

VAT revenues are projected to increase by HUF600bn to HUF8.8 trillion. There is HUF5.1 trillion earmarked for economic development, including HUF2.2 trillion from EU transfers. Defence expenditures are targeted at HUF2 trillion, in line with Hungary's commitment to NATO to keep defence spending at 2% of GDP.