Speech by Dr. László Windisch, President of the State Audit Office of Hungary, delivered at the National Assembly on 22 October 2025, on the audit of the 2024 final accounts.
Honourable National Assembly,
Honourable Mr. Speaker of the National Assembly,
Honourable Mr. Secretary of State,
Honourable Members of Parliament,
In the world’s annual cycle of nature, autumn is the season of harvest, a time to take stock of the work that has been done. This has also been the case in public finance for 156 years. Following the Austro-Hungarian Compromise, the first full annual budget for Hungary’s public finances was prepared for 1868, and the final accounts for the implementation of the first budget were completed the following year. The final accounts for 1868 were prepared by the State Accounting Department, which was temporarily set up within the Ministry of Finance, and the results of the final accounts were presented to the National Assembly by Finance Minister Menyhért Lónyay on 18 October 1869. The House of Representatives referred the proposal to the Standing Finance Committee for an opinion. However, the committee did not consider itself professionally qualified to review the final accounts and therefore urged the establishment of a „supreme state audit office” as soon as possible, which took place in 1870. The need to audit the final accounts led to the creation of the State Audit Office of Hungary, whose activities, taking into account the interruptions caused by history, have expanded significantly and now cover a wide range of areas related to the use and utilisation of public funds and public assets.
The world has changed a lot in a century and a half, but the main purpose of auditing final accounts has remained the same. One of the key tasks of the State Audit Office of Hungary, as laid down in the Fundamental Law of Hungary, is to audit the implementation of the central budget. In this context, every year, prior to the submission of the bill on final accounts, we audit the draft bill, thus ensuring that the National Assembly can discuss the bill on final accounts together with the report of the State Audit Office of Hungary, as stipulated in the Act on Public Finances. The purpose of the audit is to assess whether the content and structure of the bill on final accounts comply with the legal requirements and, most importantly, whether it presents the financial data and information relating to the implementation of the budget in a true and fair manner.
In addition, the audit of the State Audit Office of Hungary on the 2024 final accounts covered the assessment of the development of the deficit and public debt. Furthermore, it was also examined whether, in the areas and transactions subject to audit, the implementation of the central budget’s revenue and expenditure appropriations, as well as the use of revenues were in accordance with the basic legal requirements for the management of public funds, and whether the control environment elements related to the sample items supported the regular implementation of the budget.
The audit of the final accounts bill is the most resource-intensive audit of the State Audit Office of Hungary, covering the widest range of areas. The State Audit Office of Hungary carried out the audit of the final accounts in six audit areas, covering 101 audited organisations. The audited entities included those that managed or participated in the accounting of central and chapter-managed appropriations, EU and related domestic funds, as well as social security and separate state funds, including ministries, the Hungarian State Treasury, the National Tax and Customs Administration, the Government Debt Management Agency, the National Health Insurance Fund Management Company and the Hungarian National Asset Management Company. Among the central budgetary agencies, the State Audit Office of Hungary examined 52 organisations during its audit of the final accounts, including organisations engaged in healthcare, education, social welfare activities, as well as those operating in the fields of justice and general public administration. These organisations made more than 6,000 databases and regulations available to the auditors, as well as more than 34,000 documents related to the samples examined. In order to process this amount of information, the State Audit Office of Hungary made extensive use of automated database management methods in addition to significant human resources.
The State Audit Office of Hungary assessed the reliability of the cash flow revenue and expenditure data contained in the bill using a statistical sampling method which, with a 95% confidence level, made it possible to determine whether the performance data in the final accounts bill contained any significant reliability errors.
Honourable National Assembly,
Turning to the results of the audit on the final accounts, the State Audit Office of Hungary found that the Ministry of National Economy had prepared the 2024 final accounts bill in accordance with the legal requirements and in a structure comparable to the annual budget. The audit did not reveal any material errors in the expenditure and revenue performance data contained in the bill that would affect the reliability of the final accounts bill. In addition, we found that the managing bodies of the separate state funds and social security funds prepared the 2024 budget reports of the funds in accordance with the law.
The report of the SAO presents the implementation of appropriations managed centrally and by chapter, subsidies financed from EU and related domestic resources, organisations belonging to the central subsystem, and appropriations for social security and separate state funds, as well as the results of the regularity audit of their implementation. This provides the Honourable National Assembly and all interested parties with a comprehensive picture of the extent to which revenues and expenditures in these areas were implemented in line with the appropriations, the types of revenues and expenditures incurred in each area, and the areas covered by the regularity audit of the State Audit Office of Hungary. In addition, as a new feature, the audit report on the final accounts draws readers’ attention to other audit reports published in connection with the area in question, which provide information on further regularity audits, as well as audits and analyses carried out by the State Audit Office of Hungary taking into account economic, efficiency, effectiveness and expediency aspects.
When auditing organisations belonging to the central subsystem, the State Audit Office of Hungary also examined the control environment directly related to the sample items, focusing in particular on the availability of financial and accounting regulations, procurement process regulations and records relating to the exercise of financial management powers. In doing so, it did identify some irregularities, but these were not significant and did not affect the reliability of the final accounts on the implementation of the central budget as specific deficiencies. The State Audit Office of Hungary reported the errors and deficiencies to the heads of the organisations concerned, who will be able to remedy the deficiencies in the future. However, the aim of the State Audit Office of Hungary is to ensure that it does not identify such errors after the end of the financial year, but at a time when the errors can be corrected during the implementation of the budget for the year in question. Therefore, starting next year, we will carry out audits of the regularity of transactions in the audit area of organisations belonging to the central subsystem during the financial year, after the economic events have taken place. This will provide the audited organisations with the opportunity to remedy the shortcomings during the financial year in question.
Honourable Members of Parliament,
Moving on from the details to the summary data, I consider it a favourable development that in 2024 both the budget cash deficit and its ratio to GDP decreased compared to 2023. The central government deficit in 2024 amounted to 4.8% of GDP, which is a significant improvement compared to 5.9% in 2023. The government sector’s accrual-based deficit also declined, reaching 5.0% of GDP in 2024, compared to 6.8% in 2023. At the same time, the central subsystem’s cash flow deficit in 2024 exceeded the amount specified in the act on the budget by 57% and amounted to nearly HUF 4,000 billion (HUF 3,948.3 billion). As President of the State Audit Office of Hungary, which reviewed the 2024 budget bill and found it to be well-founded, I consider it my duty to answer the question of what caused the budget deficit to exceed the planned amount.
Firstly, I would like to point out that tax revenues fell short of the projected amount by nearly HUF 1,400 billion (HUF 1,383.3 billion). In its opinion on the 2024 budget bill, the State Audit Office of Hungary considered the planned revenues to be achievable, but only on condition that the macroeconomic forecast set by the government is met. It supported this position by stating that, according to the assessment of the Fiscal Council, the macroeconomic forecast underlying the budget planning could be realised. At the same time, the Fiscal Council emphasised that this was subject to significant risks. A significant portion of the risks indicated by the Fiscal Council have materialised, resulting in macroeconomic conditions for budget implementation that are significantly less favourable than the government had expected. However, it should be noted that the forecasts made by domestic and international economic forecasting institutions in the first half of 2023 also projected much more favourable scenarios than what actually happened in the following year and a half. Following the practice of previous years, the State Audit Office of Hungary prepared an analysis of how macroeconomic factors influenced the 2024 budgetary processes. This analysis was also published on the SAO website. I will highlight only the most important findings of this analysis.
Firstly, I would like to draw attention to the fact that the development of the 2024 budget revenues, expenditures and deficit was influenced not only by the macroeconomic processes of 2024, but also by those of 2023 – and their deviations from the government forecasts on which the budget was based – as the National Assembly adopted the 2024 budget in July 2023, and the performance of the Hungarian economy in the second half of 2023 also fell short of expectations. Instead of the 1.5% economic growth forecast for 2023, the Hungarian economy contracted by 0.8%. In 2024, the economy returned to the growth path, but at a rate of 0.6%, which was below the 4.0% forecast.
The most significant decline was in gross fixed capital formation: in 2023, the decline was 6.7% compared to the previous year, and in 2024, it was 9.9%. The decline in investment was more likely related to the weak economic situation than to financing difficulties. The expansion of capacity of export-oriented companies was held back by the weakness of external markets, while on the domestic market, in addition to the lack of EU funds, the downward trend in the business confidence index acted as a brake. The volume of investments declined for nine consecutive quarters compared to the same period of the previous year. The contraction of foreign markets is well illustrated by the fact that in 2024, the value of product exports fell by 0.2% compared to a year earlier, although service exports grew by 7.9%. On a positive note, we managed to maintain our foreign trade surplus, as product imports fell more sharply than exports due to weak domestic demand, particularly the decline in investments.
The lower-than-expected performance of the Hungarian economy was also reflected in the profitability of businesses, whose total payments fell 7.5%, or nearly HUF 300 billion, short of the level calculated when preparing the 2024 budget. Revenues from corporate tax (87.4%), small taxpayer lump-sum tax (86.6%) and small business tax (94.7%) also fell short of the appropriation.
Among macroeconomic factors, household consumption had the most significant impact on budget revenues, as more than half of the central budget’s tax revenues came from consumption-related tax revenues. Household consumption expenditure in 2023 fell 2.6 percentage points short of the government’s forecast, resulting in VAT revenue for 2023 being HUF 820 billion lower than the calculated revenue for 2023 used as the basis for VAT revenue in 2024. As a result of the lower base, VAT revenues in 2024 fell short of the appropriation by HUF 1,200 billion, while excise tax revenues were below the target by 3.7%. This occurred despite the fact that household consumption rose dynamically in terms of volume in 2024, but this increase was based on a lower than planned base. Our analysis deals in detail with the question of why VAT revenues fell so significantly short of the amount projected in the law.
The analysis concluded that, following high inflation in 2022 and 2023 and the associated significant decline in real wages and the real value of savings, households were cautious in increasing their consumption expenditure. In 2023, the real value of earnings declined at an annual rate exceeding the government’s expectations as a result of average annual inflation of 17.6%. However, the downward trend reversed in the fourth quarter of 2023, and in 2024 real earnings grew very dynamically (by 9.0%), partly because inflation remained below the government’s 6% forecast. Real wages thus began to rise as early as the autumn of 2023, but consumption growth lagged behind. This is also shown by the fact that retail sales volume only reached its pre-inflation shock level, i.e. the level of Q4 2021, in Q4 2024. Households – those that were able to do so – tended to increase their savings rate, typically until the real value of their savings approached the 2021 level.
It is important to learn that high inflation has a long shadow. In 2022, some analysts still believed that inflation was good for fiscal balance. Then we saw that inflation increases budget revenues only in the short term, after which budget revenues begin to decline, while certain expenditures remain high. The loss of confidence has a paralysing effect on the entire economy. In fact, in the short term, even curbing inflation can have a negative impact on fiscal balance. This was the case in 2024, when the inflation rate (3.7%) was just over half of the government’s forecast, which, despite its many beneficial effects, restrained the nominal increase in consumption-related taxes.
In contrast to consumption-related taxes, general government revenues proportional to wages (personal income tax, social contribution tax, social security contributions) were slightly higher than projected in 2024. Why did this happen? Because although the increase in gross average earnings in 2023 was 1.6 percentage points below the forecast, in 2024 it exceeded it by 2.9 percentage points. The favourable development of revenues was also reinforced by the fact that the employment rate among the population aged 15-74 rose by 0.3% compared to the previous year. The impact of slow economic growth on the labour market was only reflected in a decrease in the number of unfilled vacancies.
On the revenue side of the budget, it should be noted that only 50.7% of the European Union revenues planned in the Act on the Budget were realised in 2024, which represented a revenue shortfall of more than HUF 1,200 billion.
Despite the shortfall in tax revenues and EU revenues, total revenues of the central subsystem were below the target by only 0.4%, or approximately HUF 150 billion. Payments related to state assets generated HUF 275 billion in additional revenue, driven by higher-than-planned revenue from the sale of carbon dioxide quotas and credits from company-related revenue (dividend payments, capital withdrawals). However, these were only able to partially offset the HUF 2,600 billion shortfall in tax and EU revenues compared to the amount projected in the budget law. The fact that revenues at the central subsystem level were only 0.4% lower than planned is largely due to revenues that are simultaneously recorded as expenditures in the budget during another budget cycle. A clear example of this is that interest income related to the financing of public debt was more than HUF 350 billion higher than planned. However, this was mainly due to the fact that in December 2024, the Hungarian State repurchased government bonds worth more than HUF 1,000 billion from the Central Bank of Hungary before their maturity, which resulted in cash interest income of HUF 322 billion according to the accounting statements. The logic behind this is that no interest needs to be paid on repurchased bonds.
As a further example, I can mention that in the central budget, the revenues of budgetary organisations and chapter-managed appropriations, as well as the revenues of the state investment chapter, were higher than planned. However, a significant part of the surplus revenue was related to cash flows within the general government, i.e. it appeared as both budget expenditure and revenue, so these transactions were neutral in terms of the cash flow deficit. In light of this, we must conclude that the majority of the deficit exceeding the amount specified in the Act on the Budget was generated on the revenue side, primarily due to VAT revenues and EU revenues falling significantly short of projections.
The other components of the higher deficit can be found on the expenditure side. Overall, in 2024, the expenditure of the central subsystem was 3.2%, i.e. of nearly HUF 1,300 billion higher than the budget. Part of the additional expenditure was generated by economic developments in 2023 and 2024, which were less favourable than expected. Due to higher-than-expected inflation in 2023, pensioners and those entitled to pension-type benefits received an additional 3.1% pension increase in November 2023, which was naturally incorporated into the basis for the 2024 pension increase. When preparing the 2024 budget, inflation was forecast to be lower than it actually was in 2023, i.e. no additional pension increase was calculated with, so no provision was made for this in the budget. As a result, the additional pension increase led to an overspending of pension expenditure estimates not only in 2023 but also in 2024. It should be noted that in 2024, pensions were increased at the beginning of the year in line with the forecast inflation rate of 6%, but inflation was 3.7%, so the real value of pensions rose by more than 2% in 2024.
Macroeconomic processes also influence public finance interest expenditure, which exceeded the budget by more than HUF 500 billion in 2024. The increase compared to the planned level was mainly due to global and domestic financial market conditions that were not conducive to a rapid decline in interest rates in line with the pace of moderating inflation. The central bank’s base rate in 2024 exceeded the technical assumption used in the preparation of the budget by 70 basis points. The public debt could only be safely financed with higher-than-forecast interest rates. The largest interest expense was the payment of interest on inflation-linked retail government securities at the beginning of 2024, which was almost in line with the planned value, with an overspend of less than 5% on this item. The large overrun was mainly due to higher-than-expected yields on other government securities. Interest expenses were also increased by the weakening of the Hungarian forint, which increased the forint amount of interest payable in foreign currency. This also contributed to the overspending on interest expenses, as the draft Act on the Budget assumed a stable forint exchange rate.
Expenditure under the state investment chapter was HUF 225 billion higher than budgeted, despite the fact that the government decided to reschedule and postpone HUF 675 billion worth of public investment and to review the financing of state investments in order to curb budgetary expenditure in 2024.
Expenditures related to state assets exceeded the appropriation by HUF 325 billion. A significant part of the overspending was due to the capital increase carried out at CORVINUS International Investment Ltd. in January 2024, which enabled the acquisition of a stake in AIRPORT Holding Advisory Ltd.
In addition to the above, payments in excess of the planned amounts were also made in the lines relating to budgetary organisations and appropriations under chapters for specific professional tasks. Some of these were covered by the reallocation of appropriations planned in the budget under other headings (e.g. earmarked reserves, Utility Cost Protection Fund).
Not only macroeconomic developments affected the 2024 budget, but budget revenues and expenditures also had an impact on the performance of the Hungarian economy in 2024. In this regard, I must point out that in 2024, just over half of the budget revenue expected from the European Union was received by the budget. As a result, the government was forced to postpone or scale back the developments planned with EU support: EU development expenditure fell short of the budgeted amount by HUF 1,671 billion. This could not be compensated for by the fact that domestic capital expenditure in the budget was HUF 788 billion higher than planned. The balance of actual expenditure in the two sub-budgets was HUF 883 billion less than planned, meaning that in 2024, the spending from the central budget to support national economic investments was lower by this amount. This was one of the main reasons for the decline in investments, especially in the public sector.
Honourable Members of Parliament,
The most important indicators for assessing budget implementation are the cash deficit of the central subsystem of general government and the accrual-based deficit of the government sector relative to GDP, as well as the public debt indicator. The denominator of all three indicators is the nominal GDP. The preliminary actual figure was 4.5% lower than the forecast on which the draft Act on Budget was based. This, together with the higher-than-planned deficit and public debt, was partly responsible for the less favourable values of the above indicators than those specified in the Act on the Budget.
The government sector’s accrual-based deficit for 2024 was set at 2.9% of GDP in the explanatory memorandum to the Act on the Budget. This deficit target was revised by the government in the Convergence Programme published in April 2024, setting it at 4.5% of GDP. According to the latest data (October 2025 EDP report), the general government deficit at the end of 2024 was 5.0% of GDP. Our analysis presented the macroeconomic factors leading to the higher deficit, and the Government also took measures to reduce the deficit. Our audit did not reveal any errors affecting the reliability of the final accounts prepared on the implementation of the central budget. Nevertheless, the question arises as to whether it would not be appropriate to amend the Act on the Budget if, at the end of the first quarter of the fiscal year, it is already apparent that the deficit will be significantly higher than the target set in the Act on the Budget. As a member of the Fiscal Council, I would like to draw the attention of the National Assembly to the relevant sentence in the Fiscal Council’s latest decision. I quote: „In order to maintain the economic compass role of the budget, it is advisable to amend the Act on the Budget in the event of deviations exceeding predefined thresholds for certain selected indicators.”
The most unfavourable feature of the implementation of the 2024 budget is that the continuous decline in the public debt ratio since 2011, which had previously only been interrupted in 2020 due to the coronavirus pandemic, has come to an end. I have already explained which macroeconomic factors caused the GDP, which is the denominator of the indicator, to fall significantly (by 4.5%) short of the forecast value. The public debt, which is the numerator of the indicator, increased significantly as the cash flow deficit was 57% higher than projected. However, this alone would not have caused the public debt indicator to rise.
There was a third factor, however, namely the weakening of the forint exchange rate. It also contributed to the increase in public debt and, through this, to the increase in the debt indicator, as the forint value of debt denominated in foreign currency rose. The weakening of the forint exchange rate compared to the end of 2023 increased the government sector debt by 1.7% of GDP by the end of 2024.
If this increase had not occurred, then – with all other factors remaining unchanged – the public debt ratio at the end of 2024 would have been 72.1%, compared to the actual measured increase of 73.5%. It would have remained below the 2023 value of 73.2%. The public debt ratio would therefore not have increased if the aforementioned weakening of the forint exchange rate had not occurred. However, in this case, the Hungarian Act on Economic Stability contains an exception regarding the implementation of the budget. In view of this exception, the increase in the public debt indicator is not contrary to the general requirement of this Act to reduce the public debt indicator.
Honourable Members of Parliament,
To summarise what I have said, I would like to emphasise once again that the audit of the final accounts submitted to you on the implementation of the 2024 central budget did not reveal any material errors that would affect the reliability of the data on actual revenues and expenditures and their balance. I therefore recommend the adoption of the bill.
Thank you for your kind attention.