Hungary’s parliament approved next year’s budget at the last session before the summer recess on July 7 but with assumptions that many analysts say are overly bullish.

The budget targets revenue of HUF38.2 trillion (€98.7bn) and expenditures of HUF40.7 trillion with a HUF2.5 trillion deficit, or 2.9% of GDP, and a year-end state debt-to-GDP ratio of 66.7%, down from an anticipated 69.7% at end-2023.

The bill assumes 4% growth next year from 1.5% this year, although more and more analysts say that target is overly bullish. On Friday S&P projected marginal GDP growth of 0.1% in 2023, while the OECD predicts zero growth this year and just 2.5% in 2024. Some analysts are even predicting an overall recession this year.

Hungary's radical rightwing government has not yet put in place budget tightening measures being followed by neighbouring Czechia and Slovakia despite having much worse economic fundamentals.

The 2024 budget allocates HUF1.34 trillion in energy subsidies to households and around the same for defence spending, boosting the level over the 2% level.

The government expects HUF2.1 trillion in contributions and windfall profit taxes from companies in the energy, mining, telecommunications, airline and pharmaceutical sectors.

The budget targets HUF3.9 trillion of spending on European Union-funded developments. Expenditures on debt servicing are targeted at HUF3.14 trillion, up from HUF2.54 trillion this year.

Parliament approved the bill with 121 votes and 44 against.

Analysts noted that the 2024 budget does not include the cost of recapitalisation of the Hungarian National Bank’s HUF400bn loss in 2023, which de facto is against the regulation.

The government is set to start consultation with the ECB on allowing the central bank to operate with negative capital, state secretary of the finance ministry told public radio on Friday. If the request is positively assessed by the ECB, parliament could amend the Central Bank Act in the second half of the year.

A positive decision by ECB would be vital as the MNB is slated to post a historic HUF1.8-2 trillion loss in 2023 as borrowing costs surged and it has trillions of loans disbursed at zero percent on its books.

In the reasoning attached to the legislation, the government called the 2024 budget a "defence budget" that addresses the challenges posed by "the negative consequences of the instable global economic environment, Brussels' failed sanctions policy and the prolonged war".

Meeting the 2023 deficit target also looks questionable as tax revenues have missed targets so far while expenditures were lifted on energy subsidies and higher debt service costs. OTP Bank analysts forecast that without corrective measures this year, the deficit target could miss the 3.9% target by 2.1pp.