Hungary Newsflash Week 46
Macroeconomic projections for the coming years, exployer tax cut package announcement, bakery product price increase, and the foreign expansion plans of the National Stud Farm - The week in Hungarian agriculture
EU Commission projects the Hungarian economy to continue its growth trajectory
In their latest macroeconomic forecast, the EU Commission has published their projection for Hungary’s economic figures in the coming years. While the country’s GDP growth (y-o-y) was -4.7% in 2020, 2021 saw a strong upswing with a figure of 7.4% and this rate will gradually decrease to 5.4% in 2022 and 3.2% in 2023.
The rate of inflation is expected to turn around again, it increased from (y-o-y) 3.4% in 2020 to 5.1% in 2021, and this figure is expected to decrease to 4.8% in 2022 and 3.4% in 2023.
The budget balance is expected to continue to come back from deficit – From -8% of the GDP in 2020 and then -7.5% in 2021, to -5.7% in 2022 and then -3.8% in 2023. The gross public debt is also gradually decreasing: In 2020, the figure was 80.1% of the GDP, in 2021 it rested at 79.2%, and in 2022 and 2023, it will reach 77.2% and 76%, respectively.
The country’s current account balance will go into a trough next year. In 2020, the figure was -1.6% of the GDP, in 2021, it was -1.1% and in 2022 this will increase to -2.4% and then the trend will turn around in 2023, with a figure of -1.9%.
According to analysts, these positive trends are due to the government’s fiscal expansion during the pandemic crisis. Consumption levels are increasing more than expected and investments continue at a steady rate.
Employer tax cuts to be introduced in January
The economic cabinet of the government has greenlit an employment tax reduction package worth €2 billion per year, announced Minister of Finance Mihály Varga on social media last weekend.
The cuts will decrease employers’ tax and social contribution duties. Starting January 1, 2022, employment social contribution taxes will decrease by 2.5 percentage points and the 1.5% compulsory vocational training contribution will be abolished. The tax rate for small businesses will be reduced to 10%.
The current reduction in local business tax for small and medium-sized enterprises will be extended. This might be a crucial aspect because local business taxes are revenue streams for municipalities, many of whom are already suffering because of the pandemic crisis, primarily, because of income losses in connection with the government’s crisis management measures. With this plan, SMEs will only pay 1% tax in 2022.
Double digit price increase expected for bakery products
In the past few weeks, prices at the commodity market started to drastically climb in the case of cereals and corn, including wheat and maize. The price of these crops has almost doubled - From a relatively constant multi-annual level between €110 to €137.5 per metric ton these prices increased to a level of €247 to €274 per ton.
Dávid Hollósi, manager of the agriculture branch of the banking company Takarékbank has recently commented on this trend in a radio interview by InfoRádió. Mr. Hollósi sees three main factors as the primary culprits behind the price surge: An economic supercycle, the effects of the COVID-19 pandemic and the ongoing energy crisis.
As a consequence of the trend, the price increase is expected to travel down the value chain. Experts now project a 40% raise in the transfer price of flour by the milling industry in January. This will definitely lead to a double digit price increase for bakery products.
Mr. Hollósi has also mentioned that the fourth factor in the trend is cereal shortage. Although the grain itself is physically present in granaries, most of the produce is already contractually locked into trade deals, and for those who haven’t stored up earlier, it will now be much harder to get cereal on the open market than it has been in the past years.
National Stud Farm might have ambitions to expand abroad
Hungary’s National Stud Farm has recently undergone an ownership restructure – And the man in charge, János Lázár, head of the stud farm project, has new plans for the establishment.
Mr. Lázár, Fidesz MEP and former Minister of the Prime Minister’s Office, has recently become the head of a new foundation which was registered on October 28, and has been handed over 100% of the shares of the National Stud Farm as well as the right to administer 8.2 thousand hectares of agricultural land and 1.5 hectares of forests.
This is not the first instance of public property being privatized under various foundations in the past years. Mr. Orbán’s government started privatizing universities in the last few years, including the new Hungarian Agricultural and Life Sciences University which was handed to a private foundation in February this year.
Mr. Lázár has commented that the previously state-owned company has ambitions to expand and that the board of the foundation as well as the management of the company are urging the government to aid in the company’s acquisition of other agricultural companies, either domestically or in the two countries that are close to the Stud Farm’s headquarters in Mezőhegyes: Romania and Serbia.