Hungary to cut the deficit below 5% of GDP in Magyar's first budget plan

Hungary Plans Major Deficit Reduction to 4.9% of GDP in 2027 Budget Draft

Hungary's 2027 Budget Draft and Economic Measures

Deficit Reduction Targets and Euro-Adoption Ambitions

BUDAPEST, Oct 19 (Reuters) - Hungary's budget will target a much lower deficit of 4.9% of gross domestic product in 2027, Prime Minister Peter Magyar said on Monday as he unveiled the government's draft plan, which is seen as a key credibility test for its euro-adoption ambitions.

The deficit reduction would mark a sharp narrowing from an expected 7.5% of GDP budget shortfall this year, and it is more ambitious than a 5.3% deficit expected by analysts in a Reuters poll last week.

Magyar and his government are trying to curb the deficit eventually to below the EU's 3% target ceiling while still honouring the pledges to voters that helped secure his landslide election win over Viktor Orban in April.

Spending Plans and Revenue Measures

New Spending Initiatives

New spending is set to reach over 2 trillion forints ($6.2 billion) next year, while the government has found an additional 1.5 trillion forints in spending cuts and will raise revenue through a new wealth tax, a higher corporate tax for the country's biggest firms and increased taxes on energy companies.

Tax Cuts and Social Benefits

Income Tax and Family Allowance

In the draft budget, the government promised to cut income tax for more than 2 million taxpayers, costing 250 billion forints. It will also lower the income tax on the minimum wage to 9% and double the family allowance.

Spending to ease the burden of energy price spikes will also remain in place.

Pension Increases

Pensioners will continue to receive an extra monthly pension payment, and overall the rise in pensions plus changes to pensioners' benefits will cost nearly 450 billion forints.

Wage Hikes in Key Sectors

The government also plans wage hikes for workers in healthcare, social services, education and other areas, adding 677 billion forints to budget spending.

Wealth Tax Implementation

Magyar said the wealth tax for individuals with assets exceeding 1 billion forints will raise 200 billion forints per year.

Market Reactions and Euro Adoption Outlook

The government's aim to adopt the euro has triggered a rally in Hungary's forint, which helped drive inflation below the central bank's target, while bond yields have tumbled this year and are among the lowest in central Europe.

The forint outpaced other central European currencies on Monday and was at a four-week high.

Analysts see Hungary joining the euro in 2032 or 2033.

Additional Information

($1 = 323.4500 forints)

(Reporting by Gerely Szakacs, writing by Jason Hovet; Editing by Hugh Lawson)