Dr. László Windisch, President of the State Audit Office of Hungary, presented the Opinion of the SAO on the bill on the 2026 central budget to National Assembly on 21 May 2025.
Honourable Speaker, Honourable Minister, Honourable Members of Parliament,
On the first page of its Opinion, the State Audit Office of Hungary summarises its two main conclusions:
- The bill on Hungary’s central budget for 2026 is substantiated by calculations.
- Revenue appropriations can be met provided that economic trends develop in line with the macroeconomic projections set out in the explanatory memorandum to the bill.
The first sentence underlines that the staff of the organisations working on the preparation of the budget bill have done a thorough job, with the exception of a few minor shortcomings to be detailed later on, including taking into account legislative amendments, changes in the number of people entitled to certain benefits and the carry-over effect of this year’s measures to 2026, and adapting their development needs to the possibilities.
In assessing the feasibility of revenue appropriations, our auditors also noted that the planning of revenue appropriations was in line with the government’s macroeconomic projections underlying the bill, as described in its explanatory memorandum, and with the amendments to tax regulations already enacted or publicly announced for 2026.
Our auditors have double-checked all key revenue appropriations and only found a few cases with minor differences between our calculations and the figures presented. I will also explain them in more detail later on. However, we have drawn a more conservative conclusion from this positive assessment in that revenue appropriations can be met provided that economic trends develop in line with the macroeconomic projections set out in the explanatory memorandum to the bill.
It should be recognised that since 2022, the government’s projections underlying the budget bill have proven to be too optimistic in hindsight and, consequently, actual revenues have fallen short of revenue plans based on these projections and original deficits target have not been met either.
There is a particularly high level of uncertainty surrounding macroeconomic developments in 2025 and 2026. I deliberately said uncertainty and not risk as we can see both positive and negative patterns all over the world. Political and economic factors, both global and domestic, that have a significant impact on Hungary’s economic opportunities, have the potential for both dynamic development and curbed growth. The government’s macroeconomic projections for 2026 build on the former, while the negative conditions are also very real.
In its opinion, the Fiscal Council reviews the risks and it is not my place to repeat them here. I want to highlight one element from the government’s projections that could have a significant impact on the evolution of budget revenues if it did not materialise, namely the 10.2 per cent projection for the growth in average gross pay in the competitive sector in 2026. Indeed, this is significantly higher than the 7.6 per cent included in the November 2024 wage agreement between the members of the Permanent Consultation Forum of the Competitive Sector and the Government, although only as an indicative figure for renegotiating the agreement. The 10.2 per cent rate is also 2-3 percentage points higher than the forecasts of relevant international and domestic think tanks. If the growth in average pay in the competitive sector does not significantly exceed 7.6 per cent, there will be a significant shortfall in tax and contribution revenues as a share of wages. A lower rate of growth in average pay could also curb consumption growth, thereby posing a risk to the payment of taxes on consumption. The planned 11.9 per cent growth in average pay in the public sector is supported by measures.
Despite these uncertainties, the SAO assessed the 2026 budget bill on the assumption that the government’s projections, as set out in its explanatory memorandum, would be met.
The SAO made this assumption because, first, it could not have carried out the assessment otherwise and, second, the uncertainties and risks surrounding the macroeconomic baseline were addressed in the opinion of the Fiscal Council and I also voted there to express my opinion that there is a real chance that the economic path considered by the Government would materialise; in other words, I would not exclude that it could be achieved.
I have already explained this in my exposé last year, but I think it should be reiterated to avoid any misunderstanding. For example, revenues from social contribution tax are most affected by pay growth, while meeting the VAT appropriation depends mostly on the development of consumption. Consequently, the assessment of the soundness of the appropriations and the revenue performance of the draft law could only be carried out by the State Audit Office of Hungary on the basis of the government’s forecast, which is presented in the annex to the explanatory memorandum of the budget bill.
The SAO would only change this approach if the Fiscal Council considered the government’s projections unrealistic. This is not the case, however, and the Fiscal Council considers the projections realistic, although with substantial risks. As a member of the Fiscal Council, I naturally agree with this consensus view.
We are aware that economic trends in the first quarter of 2025 were worse than expected, so the first thing we did when reviewing the 2026 bill was to assess whether its authors had anticipated this situation. The risk of overestimating the basis for revenue appropriations was mitigated by the government’s lowering, in April 2025, its projections for economic growth in 2025 compared with its projections in November 2024, which formed the basis of the 2025 budget, and taking them into account to determine the evolution of revenues by the end of 2025. Thus, the bases for 2026 appropriations can be considered realistic.
Honourable Members of the National Assembly,
There are three relevant questions raised by the SAO’s Opinion on the budget bill:
- Are the appropriations in the bill on the central budget substantiated by calculations?
- Can revenue appropriations be met?
- Do the identified risks threaten the ability to comply with statutory requirements for the public debt rule and the deficit, considering the reserves?
I will briefly describe the answers to these questions obtained as a result of our work. They are explained in detail in the written Opinion.
The SAO assesses the bill’s substantiation by calculations on the basis of a sample. We apply statistical sampling methods to draw samples from the appropriations listed in Annex 1 to the bill, separately for revenue and expenditure appropriations, with a sample size that covers at least 90 per cent of total revenue and expenditure for the appropriations. The soundness of the sampled appropriations is assessed on the basis of documents requested from the relevant heading’s managing body responsible for planning. A detailed description of the methodology is publicly available on the SAO’s website.
For the purposes of substantiation by calculations, 51 revenue appropriations and 228 expenditure appropriations were selected. The reason for such a significant difference between the numbers is that the average amount of revenue appropriations is much higher than that of expenditure appropriations, so a 90 per cent coverage could be achieved with a lower number of revenue items. On the basis of the assessment, 99.9 per cent of revenue appropriations and 99.3 per cent of expenditure appropriations were found to be substantiated by calculations.
Our audit only revealed weaknesses in terms of the substantiation by calculations in the revenue appropriation of HUF 22.6 billion for institutions in charge of the performance and management of social, child protection and child welfare functions, the revenue appropriation of HUF 3.3 billion for Water Management Directorates and the revenue appropriation of HUF 20.0 billion for the real estate investments in the Buda Castle District.
Therefore, the SAO’s answer to the first question is that, overall, appropriations in the 2026 budget bill are substantiated by calculations.
Honourable Members of the National Assembly,
The SAO assesses the feasibility of revenue appropriations for so-called ‘material amounts of revenue appropriations’. According to our methodology, appropriations are considered material if they exceed 0.15 per cent of total revenue.
In the budget bill, the total of material amounts of revenue appropriations accounted for 77.3 per cent of total revenue. For 0.1 per cent of the amount of selected appropriations, the SAO identified a risk to the feasibility. This low rate is due to the fact that most of the relevant revenue appropriations were assessed as being able to be fully met, but for some appropriations, there were doubts concerning a small percentage of the proposed amount over their feasibility.
These were as follows: HUF 7.0 billion for corporate tax, HUF 16.8 billion for energy sector contributions, HUF 5.8 billion for retail tax, HUF 2.0 billion for insurance tax, HUF 3.8 billion for the share of social security contributions due to the Health Insurance Fund and HUF 3.8 billion for health insurance contributions. Adding these together, the estimated risk to the feasibility of revenue appropriations is HUF 35.4 billion.
In our written Opinion, we explain in detail what circumstances led the SAO to identify a risk to the feasibility of appropriations. I would like to bring up just one as an example. The National Assembly amended the small business tax regulation so that it would be more favourable for many businesses to be subject to small business tax instead of corporate tax from 2026. In view of this, proposed 2026 small business tax appropriations were increased, but corporate tax appropriations were not reduced with the corresponding amount. HUF 7 billion is not a large amount compared to the latter allocations totalling nearly HUF 1,300 billion; however, the SAO believes that it is essential for the budget bill to take into account not only the effects of each measure that increase revenue, but also its consequences that reduce revenue.
It can be argued that the amount for the risks to the feasibility of appropriations identified by the SAO is very low. This is true, as it should be. Let me attribute this low amount partly to the work of our auditors. Indeed, over the years, the bodies planning revenue appropriations have seen that auditors very carefully double-check the feasibility of revenue appropriations; consequently, they have to aim for a high level of accuracy when planning.
However, the precision of planning is only one factor in the actual feasibility of revenue appropriations. The other factor is whether macroeconomic developments are in line with the government’s projections as planning bodies based their calculations on them. Therefore, as to this point, the SAO’s Opinion underlines once again that, overall, revenue appropriations pursuant to the 2026 budget bill are feasible provided that the government’s projections are realised.
In order to ensure the feasibility of budget appropriations, the National Assembly also has work to do as full appropriations for mining royalties, the carbon quota tax, contributions by financial institutions, energy sector contributions, the insurance tax, the retail tax will only be feasible once the planned legislative amendments are adopted. The amount of the projected budgetary impact of the planned legislative changes is not small, with a total increase of HUF 521 billion in revenues.
I would like to underline that the SAO did not consider EU revenues in terms of the feasibility of appropriations, given the, mostly political, uncertainties surrounding the disbursement of EU funds and the prolonged decision-making process.
The SAO also assesses so-called ‘uncapped’ expenditure appropriations, i.e. those that can be exceeded without the specific authorisation of the National Assembly, in terms of whether their amount is sufficient to finance the benefits or deliver on the tasks intended to be covered by each appropriation. If not, it identifies a so-called ‘sufficiency risk’, meaning that there is a real chance that delivery will require more than the amount of the appropriation, thereby increasing the deficit.
In the 2026 budget bill, the total of material amounts of uncapped expenditure appropriations, i.e. amounts exceeding 0.15 per cent of total expenditure, accounted for 42.3 per cent of total expenditure. This represents a risk even though due diligence was exercised when programming these appropriations. The SAO identified sufficiency risks for 0.3 per cent of material amounts of uncapped expenditure appropriations.
Our calculations based on the documents provided to the SAO show that overruns are expected in the amount of HUF 4.6 billion for the infant care allowance appropriation and HUF 30 billion for the expressway network availability charge appropriation. The background calculations related to, parameters used and other factors taken into account for the programming of the HUF 150 billion appropriation for social policy fare support and the HUF 106 billion appropriation for interest rate equalisation for Eximbank Plc. were not fully provided to the SAO and therefore the appropriations are not substantiated by calculations.
Based on SAO estimates, the appropriations for social policy fare support and for interest rate equalisation for Eximbank Plc. carry sufficiency risks of HUF 5.8 billion and HUF 8 billion, respectively. Adding the four items together, the estimated amount of the sufficiency risk is HUF 48.4 billion.
As in previous years, we paid particular attention to examining the programming of appropriations for budgetary institutions. This year, we carried out more detailed assessments of six groups of budgetary institutions that were the focus of SAO audits last year.
Although the level of under-programming for the institutions under review was strikingly high year-on-year, based on year-end performance figures, we saw no significant shift for 2026 either, particularly for material and capital expenditures for the larger groups of institutions. For the analysed institutions, it should be a priority to set realistic targets that better approximate performance figures from previous years as this would best ensure budgetary transparency.
Our auditors have concluded that, for the institutions audited, there is still a risk in 2026 that additional funds will need to be provided during the year in order to meet expenditure.
Honourable Members of the National Assembly,
The most complex task in providing an opinion on the budget bill is to answer the third question, i.e. to assess whether the identified risks threaten the ability to comply with statutory requirements for the public debt rule and the deficit, considering the reserves. To answer this question, it is appropriate to start with the deficit as it is also one of the most decisive factors of the development of public debt.
At the end of last year, the National Assembly amended the requirements set out in the Act on the Economic Stability of Hungary for government sector deficit. Under the new regulation, the decision on government sector balance in the Act on the Central Budget shall be made in line with the Fundamental Law of Hungary and EU law.
The reason for the change is that EU regulation has been amended. The main objective envisaged in the EU Treaty, i.e. keeping the government sector deficit below three per cent of GDP, has not changed. At the same time, a Regulation of the European Parliament and the Council, which entered into force in 2024, requires Member States that have a government sector deficit persistently exceeding 3 per cent of GDP and are therefore subject to the so-called excessive deficit procedure to draw up a four-year deficit reduction programme, a so-called medium-term fiscal-structural plan, have it approved by the European Commission and the Council of the European Union and then implement it.
This means that the current requirement for these Member States is actually to reduce the deficit at an adequate rate, instead of having a deficit of maximum 3 per cent of GDP. Given that Hungary is one of these Member States, the requirement for the Hungarian budget is also to have a planned deficit in line with the medium-term fiscal-structural plan approved by the Council of the European Union. The situation is complicated by the fact that the Council of the European Union adopted a recommendation on the so-called net expenditure path and not on deficit level, assuming that the adopted path would lead to a deficit below 3 per cent of GDP by 2026, as supported by calculations.
The budget bill sets the cash deficit of the central government sub-sector at HUF 4,218.5 billion in 2026, which corresponds to 4.4 per cent of the HUF 95,747.0 billion GDP projected for 2026, as presented in the explanatory memorandum of the bill. Taking this as a starting point, the derivation presented in the explanatory memorandum of the bill shows that the government sector deficit calculated on an accrual basis according to the EU methodology for 2026 is foreseen at HUF 3,588.2 billion, i.e. 3.7 per cent of the projected GDP. This is not in line with EU law in force and therefore does not comply with the Hungarian statutory requirement either.
However, the European Commission presented the so-called ‘ReArm Europe Plan’ in March 2025, which would enable Member States to deviate from the correction path under the excessive deficit procedure in the period 2025-28 as part of the activation of the national escape clause of the Stability and Growth Pact, provided that this is due to increased defence spending. Hungary submitted its request for activation of the national escape clause, which is expected to be assessed by the European Commission on 4 June 2025.
In Hungary, defence spending as a share of GDP has increased significantly since 2022 so adopting the above rules would provide greater flexibility to increase spending, and thus the deficit, compared to current levels. Consequently, compliance with Article 3/A of the Act on the Economic Stability of Hungary is subject to the adoption of EU legislation allowing for the increase in defence spending to be taken into account and the European Commission’s positive assessment of the request for activation of the national escape clause submitted by Hungary.
In this context, Article 77 of the bill contains a review obligation. This requires the Government to review the compliance of the expenditure, revenue and balance under the budget act with the set of EU requirements after the finalisation of the above EU measures, but no later than 31 December 2025. If the Government’s review concludes that they do not comply with EU requirements, the Government must take the necessary measures to ensure compliance.
Let us move on to compliance with public debt requirements. Subject to the provisions of the Fundamental Law of Hungary and the Act on the Economic Stability of Hungary, the projected debt-to-GDP ratio at the end of 2026 shall be established in the Act on the Central Budget of Hungary for 2026 so as to ensure that it is reduced in comparison to the ratio expected at the end of 2025. According to the budget bill, the debt-to-GDP ratio is projected to be 72.3 per cent on 31 December 2026, 0.8 percentage points lower than the 73.1 per cent expected on 31 December 2025, thereby meeting the requirement set out in the Fundamental Law.
In 2026, the projected 0.8 percentage point year-on-year reduction in the public debt indicator will be the result of a 7.7 per cent increase in public debt and a projected 9.0 per cent increase in nominal GDP, meaning that the reduction in the 2026 public debt indicator will be due to the nominal GDP growth rate projected to exceed that of public debt rather than a decline in public debt.
In order to establish the limits of compliance with the public debt rule, the SAO carried out a sensitivity analysis. We have quantified the amount of so-called implicit reserves that would result from a 0.7 percentage point reduction in addition to the 0.8 percentage point year-on-year decline in the public debt indicator, which is the statutory minimum. This is understood as the extent of macroeconomic and fiscal risks that can be managed. According to our calculations, the public debt rule would not be observed if public debt were to increase by an additional HUF 713.6 billion with the nominal GDP growth rate being as projected or the nominal GDP growth rate were to fall short of 7.9 per cent with the public debt being as projected. This would mean a real GDP growth rate of 3.2 per cent, compared with the projected 4.1 per cent.
What explicit reserve appropriations are included in the bill? Central reserves amount to HUF 1,171.8 billion, 13.6 per cent higher than reserves used in 2024 and 27.9 per cent higher than the 2025 appropriations. The increase is attributable to higher appropriations for exceptional government measures and for provisions.
Provisions are intended to cover government measures the purpose of which has already been established, but the breakdown of the utilisation of the appropriations is not known at the time of the adoption of the central budget act. According to the SAO’s calculations, the provisions are sufficient to cover the expenditure on wage increase measures (e.g. pay increases for teachers and vocational training instructors, and workers in the water sector, special benefits for law enforcement personnel, increases in the minimum wage and the wage floor) already made public and other provision utilisation items listed in the bill. However, provisions may only be used for the purposes set out in the bill and not to manage any other risks that may arise during the year.
The appropriation for exceptional government measures serves as the general reserve of the budget. The appropriation for this is HUF 192 billion, which is HUF 92 billion higher than the appropriation projected for 2025.
The SAO’s Opinion identified a total of HUF 83.8 billion worth of risks to the feasibility of appropriations and sufficiency risks; consequently, this amount is covered by the HUF 192 billion appropriation for exceptional government measures. At the same time, it is considered appropriate for the National Assembly to eliminate the risks quantified by the SAO by amending the budget act accordingly as this will free up the entire HUF 192 billion to make up for the loss in budget revenues due to the materialisation of macroeconomic risks or other unavoidable reasons and to meet extraordinary expenditure.
Thank you for your kind attention!