Hungary will need a substantial fiscal adjustment equivalent to 1.7% of GDP in 2027 to return to the budgetary path agreed with the EU after consecutive budget overshoots, according to a report published by the three-member Fiscal Council, which includes Hungarian National Bank (MNB) governor Mihaly Varga.

The council, in a three-year forward-looking analysis on December 30, said that election-related spending and higher-than-planned budget deficits in 2025 and 2026 have pushed the government off track under the EU’s excessive deficit procedure, leaving little or no room for further tax cuts.

"If the 2025 outturns and 2026 budgetary developments make it necessary, the Commission could propose in its spring forecast cycle that the excessive deficit procedure against Hungary advance to a further stage," the Fiscal Council report said.

Hungary is currently under the EU’s excessive deficit procedure, which for now primarily involves monitoring.

The EU Council in February 2025 recommended fiscal correction for the government to keep the deficit below 3% of GDP over the medium term and to ensure a sustainable decline in public debt. Under the plan, net government expenditures were allowed to increase at a controlled pace, with additional flexibility for rising defence spending between 2025 and 2028, capped at 1.5% of GDP.

However, the council said the government has exceeded the planned trajectory by raising the 2025 and 2026 budget deficit targets to 5% of GDP, citing weak external demand and pre-election spending measures, which are estimated at 0.4% of GDP in 2025 and 2.2% in 2026.

Trailing in the polls behind the opposition Tisza Party, Prime Minister Viktor Orbán announced the introduction of a 14th-month pension to be rolled out gradually, starting with 1 week of entitlement in February 2026, targeting 2.3mn pensioners. The Fidesz government plans to channel an estimated HUF2.3 trillion (€5.9bn) to households through tax cuts and welfare measures.

The package includes lifelong income tax exemptions for mothers, regardless of age, with at least two children; to be rolled out in several phases, higher child benefits, a six-month bonus for soldiers and police officers, and wage increases in the welfare and cultural sectors, alongside expanding price caps on 14 food items. Analysts note that the measures are intended to secure voter support amid a large group of undecided voters, but they come at a high cost, as Hungary’s economy has been stagnating over the last three years.

By the end of 2026, the cumulative increase in government spending relative to GDP is expected to reach 0.8pp, above the 0.6pp limit. To return to the planned path by 2027, the government sector’s primary balance will need to improve by 1.7pp of GDP compared with 2026, according to the report.  The Fiscal Council emphasised that achieving such an adjustment would be difficult without expenditure cuts.

On the revenue side, there is little room for manoeuvre. While tax increases may not be necessary, further tax cuts, including the phase-out of windfall taxes, are unlikely without reducing other expenditures or increasing other revenues. Demographic trends also limit the potential for boosting employment, and wage growth is expected to slow. The government’s pre-commitment to various benefits has already reduced potential annual tax revenues by hundreds of billions of forints.

Former MNB governor Gyorgy Suranyi also cautioned that austerity measures may be inevitable given the current fiscal trajectory. He drew comparisons with 2022, when, months after the election, the government introduced windfall taxes across six sectors, a financial transaction levy, raised the bank tax, deferred state-funded investments, and increased the eligibility threshold for utility subsidies.

On the last day of the year, Hungary’s Ministry of National Economy released macroeconomic and budgetary projections through 2029. According to the forecast, GDP growth is expected to rise from 0.5% in 2025 to 3.1% in 2026, 2.9% in 2027, 3.0% in 2028, and 3.1% in 2029.  Inflation is forecast to ease gradually from 4.5% in 2025 to 3.6% in 2026, 3.4% in 2027, and around 3% in 2028-2029.

The central budget is expected to see slightly higher revenues, primarily from increased consumption taxes; however, the primary balance will remain negative over the next five years: -1.6% of GDP in 2025, -2.5% in 2026, -1.1% in 2027, -0.6% in 2028, and -0.2% in 2029.

The ministry released the figures without accompanying explanations.