The Government for the time being does not find it necessary to amend key budget estimates, as the Hungarian economy has been on a stable growth path, Mihály Varga told Hungarian news agency MTI in a year-end interview.

Following a consolidation period in the previous years, economic growth has evidently picked up as of the second half of 2013 but there is a large question mark over how expansion continues in 2016, the Minister for National Economy pointed out.

As he stressed, economic growth is expected to be above the EU average also next year, therefore the Government does not want to change its growth prediction of 2.5 percent of GDP, while the inflation rate is seen at 1.6 percent for 2016.

Several positive and negative factors are emerging in the global economic environment that may impact the performance of the Hungarian economy. It is favourable that the prices of raw materials and oil are persistently at a low level. Investors’ gloomy view of emerging markets is a negative factor, however, as they for example are pessimistic about development prospects of Turkey, Brazil and South Africa due to low raw materials prices, Mihály Varga added. Following the Fed’s tightening the forint also weakened, albeit at a lesser extent than other currencies of the region.

Mihály Varga said growth will also be robust this year, about 3 percent, while inflation will stay flat; thus, the Hungarian model is working well.

Tax revenues are higher this year than prior estimates, as a result partly of on-line cash registers and the introduction of the EKÁER (Electronic Trade and Transport Control System).

The fact that revenues from consumption-type taxes have grown is also due to the shrinking of the black economy, from 30 percent of GDP to some 20-22 percent. Thanks to better cooperation between the tax authorities of Slovakia, the Czech Republic and Romania, the number of carousel-type tax fraud cases have been significantly decreased, the Minister said. VAT fraud could be even more effectively combated if the EU allowed the Hungarian Government to apply reverse-charge VAT to a larger number of products.

In 2016, he added, the EKÁER will be fine-tuned, and as part of that process trucks and trailers will be weighed at certain check-points to ensure that “no cargo gets lost on the way”. In addition, the use of on-line cash registers will also be extended to casinos, garages, fitness centres as well as vending machines. These steps are expected to further boost fiscal revenues.

“Many analysts are expecting EU funding to be curbed significantly next year, but I am more optimistic; until the first half of 2017 all calls for tenders of EU funds will be published and preparatory works are under way as scheduled,” Mihály Varga said. This year, the Government had to add HUF 600bn to the pre-financing of EU-funded projects, as certain EU transfers had been delayed due mainly to accounting issues. This has temporarily depressed general government debt indicators as well.

Speaking of the reduction of VAT on home-building, the Minister said that the new, 5 percent VAT rate and optimising conditions for family home building allowances will make it more popular to build new residential properties, which will be favourable from the aspect of the demographic situation and GDP growth. It is still open, he added, how the expected “building boom” affects the state budget and its expenditures, and the first estimates may only be made in the first half of 2016.

Insufficient capacities at construction companies may slow down this process, he pointed out, as over the past years the construction sector has weakened so much that output cannot be expected to soar in the very near future; gradual improvement can be anticipated.

As far as the expected impact of the lowering of bank tax rate is concerned, the Minister said that in accordance with the MoU concluded with the EBRD at the end of February the Government has fulfilled its promise and cut the rate of bank tax, albeit the first version of the amendment of the law has been turned down by the European Commission.

(Ministry for National Economy)