Ministry of Finance Dr. Szabó László head of division Overall Budgetary Planning Division July 2018.

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1 Ministry of Finance Dr. Szabó László head of division Overall Budgetary Planning Division
July 2018

2 Fiscal rules and medium-term budgeting
Budgetary planning Budget execution Procedure for Year-end report

3 Medium-term projection and fiscal rules

4 Sub-systems of the General Government
Central Government: Central Budget Extra budgetary Funds Social Security Funds (Pension Fund, Health Fund) Local Governments Other Governmental Organisations (ie. MNV Zrt.)

5 Fiscal rules National fiscal rules The European Union’s fiscal rules
National debt rule Debt rules Budget balance rule (Maastricht 3%) Budget balance rule (Maastricht 3%) Medium-term Budgetary Objective (MTO) Medium-term Budgetary Objective (MTO) The Fundamental Law of Hungary, Article 36, (4): The National Assembly may not adopt an Act on the central budget as a result of which state debt would exceed half of the GDP. (5): As long as state debt exceeds half of the GDP, the National Assembly may only adopt an Act on the central budget which provides for state debt reduction in proportion to the GDP. Economic Stability Act 4. § (2. & 2.a): At least 0.1 percentage point reduction in the debt to GDP ratio (debt ratio) OR if both inflation and real GDP growth is higher than 3 percent, the change in the nominal debt (defined in the budget) must not exceed the difference of forecasted inflation and half of growth of real GDP. Balance Rules: 3/A. §-a (2a):  In planning the central budget, the government sector balance shall be determined in accordance with the Fundamental Law and EU law, and in accordance with the provisions of the Economic Stability Act. The government sector balance shall always be in line with the medium term budgetary objective. (MTO) 3/A. §-a (2b):  Budget deficit, calculated by the methodology (ESA 2010) must be below the 3% of GDP. Expenditure rule

6 Number of fiscal rules and average FRI in the EU-28
Revenue and expenditure rule are not incorporated in national fiscal framework EU expenditure benchmark “Annual expenditure growth should not exceed a reference medium-term rate of potential GDP growth, unless the excess is matched by discretionary revenue measures” (EC, 2016) If the government wants to improve (deteriorate) its structural fiscal position, expenditure net of new revenue measures should grow below (above) trend GDP Revenue rules may take two forms, they can set the minimum or maximum level of revenues. Determining the minimum income can improve the balance. Determining the revenue ceiling can, however, undermine the position of public finances. Revenue ceiling usually serves to protect the economy from excessive taxation. The advantages of revenue-side rules is that they can stimulate tax collection efficiency, improve the quality of tax administration, or rather reduce tax evading and the black economy. The disadvantages of revenue rules, however, is that the cyclical fluctuations are rather poorly managed, as opposed to expenditure rules. Since the most sensitive items to the fluctuation of economic cycles are on the revenue side (tax revenues),the rules on this - without further corrections, to prevent the automatic stabilizers from functioning - can be highly pro-cyclical in nature. Three EU Member States apply revenue side rule: In France, Lithuania, the surplus beyond the forecast of the central government is to be used to reduce the budget deficit. In the Netherlands, at the level of the entire government sector, such extra revenue should be separated and 75% is to be used to debt reduction and 25% is to be used to tax reduction. Source: MNB handbook no 14 June 2017 , FRI = Fiscal rules index

7 The required fiscal adjustment preventive arm depends on many factors
Condition Debt ≤ 60% and no sustainability risk Debt > 60% or sustainability risk Exceptionally bad times Real growth <0 or output gap <-4 No adjustment needed Very bad times -4≤ output gap <-3 0.25 Bad times -3≤ output gap <-1.5 0 if growth below potential, 0.25 if growth above potential 0.25 if growth below potential, 0.5 if growth above potential Normal times -1.5≤ output gap <1.5 0.5 >0.5 Good times output gap ≥1.5 >0.5 if growth below potential, ≥0.75 if growth above potential ≥0.75 if growth below potential, ≥1 if growth above potential all figures are in percentage points of GDP Member States should achieve a more symmetrical approach to fiscal policy over the cycle through enhanced budgetary discipline in periods of economic recovery, with the objective to avoid pro-cyclical policies and to gradually reach their medium-term budgetary objective, thus creating the necessary room to accommodate economic downturns and reduce government debt at a satisfactory pace, thereby contributing to the long-term sustainability of public finances. Member States that have not yet reached their MTO should take steps to achieve it over the cycle. Their adjustment effort should be higher in good times; it could be more limited in bad times. In order to reach their MTO, Member States of the euro area or of ERM-II should pursue an annual adjustment in cyclically adjusted terms, net of one-off and other temporary measures, of 0.5 of a percentage point of GDP as a benchmark. In parallel, the growth rate of expenditure net of discretionary revenue measures in relation to the reference medium-term rate of potential GDP growth should be expected to yield an annual improvement in the government balance in cyclically adjusted terms net of one-offs and other temporary measures of 0.5 of a percentage point of GDP. The following matrix clarifies and specifies the fiscal adjustment requirements under the preventive arm of the Pact. This matrix is symmetrical, differentiating between larger fiscal effort to be undertaken during better times and a smaller fiscal effort to be undertaken during difficult economic conditions. Definitions: Fiscal adjustment: improvement in the general government fiscal balance measured in structural terms (i.e. cyclically adjusted and without one-off measures). Growth potential: estimated rate of growth if the economy is at its potential output. Output gap: difference between the level of actual and potential output (expressed in percentage points compared to the potential output). Potential output: a summary indicator of the economy's capacity to generate sustainable, non-inflationary output. Explanations: The matrix ensures that Member States can adapt their fiscal adjustments over the economic cycle while taking into account their fiscal consolidation needs. The larger the positive (negative) output gap, the greater (lower) the required adjustment effort. The matrix takes into account the direction into which the economy is moving, i.e. whether the economic situation is improving or deteriorating, by distinguishing whether the real GDP exceeds or falls short of a country-specific potential growth rate. The required effort is also greater for Member States with unfavourable overall fiscal positions, i.e. where fiscal sustainability is at risk or the debt-to-GDP ratio is above the 60 % of GDP reference value of the Treaty. All Member States are expected to accumulate savings in good times so as to be able to have sufficient latitude for the operation of the so-called automatic stabilisers (e.g. higher welfare spending and lower tax revenues) during the downturns. In good times, the revenues of the state increase due to more vigorous economic activity and expenditure related to the unemployment falls. Therefore, the matrix envisages a higher fiscal adjustment for the Member States identified as experiencing good times, i.e. when their output gap is estimated to be ≥ 1.5 %. This is particularly important for the Member States with fiscal sustainability risks or debt-to-GDP ratios exceeding the 60 % and therefore such Member States would be required to provide a structural fiscal adjustment of ≥ 0.75 % of GDP or ≥1 % of GDP, depending on whether their good economic situation continues to improve further or not. In normal times, interpreted as an output gap between -1.5 % and +1.5 %, all Member States with a debt-to-GDP ratio below 60 % would be required to make an effort of 0.5 % of GDP, whereas the Member States with debt levels above 60 % of GDP would need to make an adjustment greater than 0.5 % of GDP. In bad times, interpreted as an output gap between -3 % and -1.5 %, the required adjustment would be lower. All EU Member States with the debt-to-GDP ratio below 60 % would be required to ensure a budgetary effort of 0.25 % of GDP when their economies grow above the potential, and a fiscal adjustment of zero would be temporarily allowed when their economies grow below the potential. In very bad times, interpreted as an output gap between -4 % and -3 %, all Member States with the debt-to-GDP ratio below 60 % would be temporarily allowed zero adjustment, meaning that no fiscal effort would be required, whereas Member States with debt-ratios exceeding 60 % would need to provide the annual adjustment of 0.25 % of GDP. In exceptionally bad times, interpreted as an output gap below -4 % or when real GDP contracts, all Member States, irrespective of their debt levels, would be temporarily exempted from making any fiscal effort. The output gap thresholds set at -3 % and -4 % are supported by past data: since the 1980s, output gaps in EU countries have been below -4 % in only one year out of twenty, while they reached -3 % in one year out of ten, hence these two values are truly indicating very bad and exceptionally bad times. Source: Communication from the Commission to the European Parliament, the Council, the European Central Bank, the Economic and Social Committee, the Committee of the Regions and the European Investment Bank: Making the best use of the flexibility within the existing rules of the Stability and Growth Pact (COM(2015) 12 final, )

8 Preconditions of launching Significant Deviation Procedure
In the case of a significant deviation from adequate adjustment path towards the MTO, SDP can be launched. The deviation will be considered significant if: the deviation of the structural balance from the appropriate adjustment path is at least 0.5% of GDP in one single year or at least 0.25% of GDP on average per year in two consecutive years, an excess of the rate of growth of expenditure net of discretionary revenue measures over the appropriate adjustment path defined in relation to the reference medium-term rate of growth has had a negative impact on the government balance of at least 0.5 of a percentage point of GDP in one single year, or at least 0.25% of GDP on average per year in two consecutive years.

9 Compliance with the MTO or the required adjustment towards it
(% of GDP) 2017 2018 2019 COM CP Structural balance pillar Required adjustment 0.3 1.0 0.75 Required adjustment corrected 0.0 Change in structural balance -1.4 -0.2 -0.5 0.7 0.4 One-year deviation from the required adjustment -1.2 -1.5 -0.1 -0.4 Two-year average deviation from the required adjustment -0.7 -1.3 -0.6 -0.9 Expenditures benchmark pillar Applicable reference rate 1.5 2.8 3.9 One-year deviation adjusted for one-offs -2.4 -2.0 -1.8 -0.3 Two-year deviation adjusted for one-offs -1.9 -2.2 -2.1 -1.1 RECOMMENDATIONS: Hungary should take the necessary measures to ensure that the nominal growth rate of net primary government expenditure does not exceed 2.8% in 2018, corresponding to an annual structural adjustment of 1% of GDP, thereby putting the country on an appropriate adjustment path towards the medium-term budgetary objective. Hungary should use any windfall gains for deficit reduction. Budgetary consolidation measures should secure a lasting improvement in the general government structural balance in a growth-friendly manner. Hungary should report to the Council by 15 October 2018 on action taken in response to this recommendation. The report should provide sufficiently specified and credibly announced measures, including budgetary impact of each of them, as well as updated and detailed budgetary projections for 2018. A jelenleg ismert adatok és a Bizottság számítása szerint a szabályrendszerből következő javaslat 2019-re a következők: the nominal growth rate of net primary government expenditure does not exceed 3,9% in 2019, corresponding to an annual structural adjustment of 0,75% of GDP, thereby putting the country on an appropriate adjustment path towards the medium-term budgetary objective. Source: European Comission

10 Factors influencing judgment on Hungarian fiscal stance
2016 2017 2018 Deviation of net expenditure growth relative to the expenditure benchmark given as a share of GDP -1,4 -2,4 -1,8 Deviation after corrections by items below -0,6 0,0 0,8 1. Co-financing is taken into account -0,7 0,1 0,4 2. Different estimate of the expenditure benchmark 1,5 0,9 1,4 3. The direct impact of discretionary revenue measures According to the Commission's calculations the expenditure rule is breached. Nevertheless, several criticisms can be posed about the methodology of the expenditure rule. Expenditure related to EU programs covered by EU revenue is, rightly, subtracted from the expenditure aggregate, but the related EU co- financing is not. The expenditure rule is, in fact, not independent of the measurement of the cyclical position, so it does not solve the problems of the structural balance rule. The value of the expenditure threshold depends on the medium-term potential growth rate and the size of required structural adjustment. The expenditure aggregate is corrected only by the direct impact of discretionary revenue measures, ie, in 2017 by the direct impact of reduction in the social contribution tax on the fiscal balance while the positive indirect effects in connection with the wage increase due to tax reduction, compensating the loss, are out of calculation. Source: MoF calculations

11 Medium-term budgeting
Medium-term documents: 2043/2017. (XII. 27.) Government Decision (GD) on the budget revenues and budget expenditures of the central budget, as well as the budget balance and government debt for years Macroeconomic and Budget Outlook (MBO) Convergence Program (CP)

12 GD – Government decision I.
2043/2017. (XII. 27.) Government Decision on the budget revenues and budget expenditures of the central budget, as well as the budget balance and government debt for years million HUF 2018. 2019. 2020. Chapter Expenditures Revenues I. National Assembly ,80 10 980,00 ,60 ,20 II. Office of the President of the Republic 2 441,90 III. Constitutional Court 1 879,00 1 871,70 IV. Office of the Commissioner for Fundamental Rights 1 331,50 V. State Audit Office of Hungary 9 317,40 20 … LXXI. Pension Fund ,20 ,90 ,00 LXXII. Health Insurance Fund ,00 ,10 ,30 Total of Central Government ,10 ,90 ,20 ,80 ,00 ,60

13 GD - Government decision II.
2043/2017. (XII. 27.) Government Decision on the budget revenues and budget expenditures of the central budget, as well as the budget balance and government debt for years 2018. 2019. 2020. Cash balance of the central subsystem ,20 ,40 ,40 Cash balance of local governments ,00 ,00 ,00 Cash balance of general government ,20 ,40 ,40 ESA bridge ,80 ,20 ,00 ESA balance of general government ,40 ,60 ,40 ESA balance of general government in percent of GDP -2,40% -1,80% -1,50% billion HUF Government debt 29 027,30 29 674,80 30 129,40 Government debt as a percentage of GDP 71,20% 68,10% 64,80%

14 Macroeconomic forecast 2017-2021 (year-on year, percent)
MBO (December ~ Government decision) I. Macroeconomic forecast (year-on year, percent)

15 Macroeconomic and budget outlook 2018-2021
MBO (December ~ Government decision) II. Macroeconomic and budget outlook

16 CP I. 1. Economic policy objectives
2. Macroeconomic developments and forecast 2.1 International environment 2.2 The components of growth External economy Investment Consumption 2.3 Labour market 2.4 Inflation trends 2.5 Cyclical processes 2.6 External balance 2.7 Assessment of the economic consequences of Government measures 2.8 Monetary and exchange rate policy 2.9 Financial sector 3. General government deficit and debt 3.1 Budget policy objectives 3.2 The 2017 budgetary outcome 3.3 The 2018 budget 3.4 Budgetary developments from 2019 to 2022 3.5 Structural balance 3.6 General government debt 4. Sensitivity analyses 5. Long-term sustainability of public finances 6. Quality of public finances 6.1 Structure and efficiency of the expenditure of public finances 6.2 Structure and efficiency of revenues 7. Institutional characteristics of public finances 7.1 Budgetary framework system 7.2 Structure of data reporting on the statistics of public finances Tables

17 a) General government budgetary prospects
CP II. a) General government budgetary prospects ESA code 2017 2018 2019 2020 2021 2022 HUF billion percent of GDP Net lending (EDP B.9.) by sub-sector 1. General government S.13 -746.3 -2.0 -2.4 -1.8 -1.5 -1.2 -0.5 2. Central government S.1311 -720.6 -1.9 -3.0 -2.1 -1.7 -1.3 3. State government S.1312  - - 4. Local government S.1313 -10.1 0.0 0.4 5. Social security funds S.1314 -15.6 0.3 0.1 General government (S.13) 6. Total revenue TR 17,008.4 44.5 45.5 45.1 42.9 41.0 39.9 7. Total expenditure TE 17,754.7 46.5 47.9 46.9 44.4 42.2 40.5 8. Balance B.9 9. Interest expenditure D.41 1,067.4 2.8 2.6 2.4 2.3 2.2 2.1 10. Primary balance 321.1 0.8 0.2 0.6 1.0 1.6 11. One-off and other temporary measures1 140.4

18 b) General government budgetary prospects
CP III. b) General government budgetary prospects ESA code 2017 2018 2019 2020 2021 2022 HUF billion percent of GDP Selected components of revenues 12. Total taxes (12=12a+12b+12c) 9,740.3 25.5 25.1 25.0 24.8 24.6 24.3 12a. Taxes on production and imports D.2 6,891.7 18.0 18.1 17.9 17.6 17.4 17.0 12b. Current taxes on income, wealth etc. D.5 2,833.4 7.4 6.9 7.0 7.1 7.2 12c. Capital taxes D.91 15.2 0.0 13. Social contributions D.61 4,898.4 12.8 12.7 12.6 12.2 11.6 11.2 14. Property income D.4 141.2 0.4 0.5 0.3 15. Other 2,228.5 5.8 7.3 5.6 4.5 4.2 16.=6. Total revenue TR 17,008.4 44.5 45.5 45.1 42.9 41.0 39.9 Tax burden2 (D.2+D.5+D.61+D.91-D.995) 14,687.5 38.5 37.9 37.7 37.1 36.3 35.6 Selected components of expenditure 17. Compensation of employees + intermediate consumption D.1+P.2 6,861.6 17.8 15.6 14.5 13.7 17.a. Compensation of employees D.1 4,132.7 10.8 10.5 9.9 9.3 8.5 7.9 17.b. Intermediate consumption P.2 2,728.9 6.4 6.0 5.7 18. Social payments (18=18.a+18.b) 5,407.2 14.2 13.8 13.1 12.3 11.8 of which: Unemployment benefits3 84.6 0.2 18.a. Social transfers in kind supplied via market producers D.6311, D.63121, D.63131 734.7 1.9 1.8 1.7 1.6 1.5 18.b. Social transfers other than in kind D.62 4,672.5 11.9 11.3 11.0 10.7 10.3 19.=9. Interest expenditure D.41 1,067.4 2.8 2.6 2.4 2.3 2.2 2.1 20. Subsidies D.3 499.5 1.3 1.4 1.2 1.1 21. Gross fixed capital formation P.51 1,687.3 4.4 6.5 5.5 22. Capital transfers D.9 988.9 3.0 3.1 23. Other 1,242.8 3.3 3.7 3.4 24.=7. Total expenditure TE 17,754.7 46.5 47.9 46.9 44.4 42.2 40.5

19 Budgetary planning (narrow sense)

20 Institutions that participate in budget formulation process
Parliament Fiscal Council document: Report Government document: Budget proposal Social partners State Audit Office of Hungary final document: Budget Bill

21 Role of Government the Government is the most important body of executive power, the primary director of public administration, it implements decisions made by Parliament, as the legislative organ, it pursues realization of the goals laid out in the Government’s programme, the Government submits the budget proposal to the Parliament the Government responsibilities and competences include all matters not expressly delegated by the Fundamental Law or other legislation to the responsibilities and competences of another body,

22 Coordination with interest representatives
Standing Consultative Forum for the Private Sector and the Government Standing Consultative Forum for the Private Sector and the Government (A Versenyszféra és a Kormány Állandó Konzultációs Fóruma, VKF) is the national consultative forum of the private sector, which members are: the Government organizations of employers interests organizations of employees interests (trade unions) The Ministry of Finance is responsible for the operation of VKF. National Reconciliation Council of Public Services National Reconciliation Council of Public Services is the largest national reconciliation forum between the public sector and the Government. Operation of OKÉT is defined essentially in the Public Servants Act. National Economic and Social Council of Hungary The Parliament adopted the ACT XCIII of 2011 on the National Economic and Social Council (abbreviated NESC in English, and NGTT in Hungarian) in recognition of the role of economic and social dialogue, in order to discuss strategies of national economy and social policy and to promote a consensus among various interest groups of society. Local government forums The additional public forums Other status dependent national, inter-sectoral and inter-ministerial interest representation forum for discussing living, working and employment conditions of public employees include: The National Labour Council of Civil Servants (KOMT). The Interest Reconciliation Forum of Public Service Officials (KEF) The Armed Forces Interest Reconciliation Forum (HEF) The Police Interest Reconciliation Council discusses interests of the parties in law enforcement agencies. The Interest Reconciliation Council of Internal Affairs (BET) Their activities are defined in the agreements concluded by the parties establishing them.

23 The government’s role in planning process
until 30 June Minister of Finance set’ out schedule for the budgetary planning The chapters managening agences, line ministries prepare the revenue and expenditure appropriation until 31July Negotiation with line ministries, proposal for legal text daft August Sending explanation of chapters Preparation the first version of the Budget Bill Minister of State for Public Finances send’s the Budget Bill in it’s first reading to the Goverment The Goverment makes the necessary decions and accepts the Budget Bill until 15 October* The Budget Bill is sent to the Fiscal Council for it’s opinion (Fiscal Council has 10 days, if it disagrees the Goverment has to discuss the Budget Bill again) The Budget Bill is submitted to Parlament

24 Documents of budgetary planning
Planning information with macroeconomic outlook Budget proposal Opinion of the Fiscal Council Opinion of the State Audit Office

25 Planning information I. Macroeconomic outlook
It states the followings: the main priorities of economic and fiscal policy the timetable for planning, negotiations with line ministries and adopting the budget the criteria to be considered during the planning the tasks and deadlines for line ministries and agencies participating in planning Main macroeconomic prospects for 2019: GDP : HUF billion Inflation: % Exchange rates: HUF/EUR, HUF/USD, HUF/CHF Brent oil price (annual average): $/barel Growth in gross wage bill: % Growth in gross average earnings: % Growth in employment: %

26 Planning information II. The criteria to be considered in the planning
the detailed budget plan for each chapter is prepared by the managing body of the chapter and sent to the Ministry of Finance basis planning : uses data from the base year (Expt-1) and corrects it for institutional changes and modification in tasks (M) and takes into account room for maneuver to increase spending (ExpRM) Expt = Expt-1*M +/- ExpRM planning bodies should prioritise their projects and ensure that expenditure proposals are based on a realistic implementation plan the chapter explanation should display what objectives and results are to be achieved main areas of planning: number of employees wages operational spending capital expenditures

27 Access to the system

28 Screen of the system

29 The work surface of the system

30 Budget Proposal 2 volumes: main and chapter volumes
Parts of Main volume: Legal text, authorization of the bill central budgetary subsector the extrabudgetary funds the social security funds The bill annexes General explanation Detailed explanation Annexes to general explanation Parts of Chapter volume 36 chapter Economic and Fiscal outlook Citizen budget etc The Bill contains: Balance and the revenues and expenditures gross sum The amount of balance The debt The provisions relating to state assets Special powers rights of the Minister for Public Finances and managing chapter of the head of departments Relationship between the local government and central government Rules on the use of EU funds The Bill annexes (9 pieces): The central government expenditure and revenue appropriations EU appropriations for the programming period Normatives for some social, performing public duties child protection institutions providing personal care General explanation: Economic and fiscal policy major measures Detailed explanation: Explanation to the budget bill Annexes to the explanatory statement: The main features of economic development The main characteristics of the general government (cash basis), economic balance sheet, consolidated expenditures, functional balance sheet Financial relations to European Union the general government deficit and debt of the European Union methodology Explanation for chapters Budget of budgetary institutions; chapter-managed appropriations for sectoral programmes and other programmes under the discretion of the chapter head (minister); EU projects managed by the chapter; centrally managed appropriations, mainly entitlement programmes, transfers to the extrabudgetary funds, to the social security funds and to local government, special larger investment projects and interest payments; and Medium term projection for the budget, central revenues, including tax and non-tax revenues

31 Budget Proposal – in details
It contains: The Bill (legal text) The total revenue and expenditure The budget balance The debt The provisions relating to state assets Special powers rights of the Minister of Finance, line ministries and the head of departments managing chapter Relationship between the local government and central government The Bill annexes (9 pieces): The central government expenditure and revenue appropriations EU appropriations for the programming period Normatives for some social, performing public duties child protection institutions providing personal care General explanation: Economic and fiscal policy Major measures Detailed explanation: Explanation to the budget bill Annexes to the explanatory statement (tables): The main features of economic development The main characteristics of the general government (cash basis), economic balance sheet, consolidated expenditures, functional balance sheet Financial relations to European Union the general government deficit and debt of the European Union methodology Explanation for chapters Budget of budgetary institutions; chapter-managed appropriations for sectoral programmes and other programmes under the discretion of the chapter head (minister); EU projects managed by the chapter; centrally managed appropriations, mainly entitlement programmes, transfers to the extrabudgetary funds, to the social security funds and to local government, special larger investment projects and interest payments; and Medium term projection for the budget, central revenues, including tax and non-tax revenues The Bill contains: Balance and the revenues and expenditures gross sum The amount of balance The debt The provisions relating to state assets Special powers rights of the Minister for Public Finances and managing chapter of the head of departments Relationship between the local government and central government Rules on the use of EU funds The Bill annexes (9 pieces): The central government expenditure and revenue appropriations EU appropriations for the programming period Normatives for some social, performing public duties child protection institutions providing personal care General explanation: Economic and fiscal policy major measures Detailed explanation: Explanation to the budget bill Annexes to the explanatory statement: The main features of economic development The main characteristics of the general government (cash basis), economic balance sheet, consolidated expenditures, functional balance sheet Financial relations to European Union the general government deficit and debt of the European Union methodology Explanation for chapters Budget of budgetary institutions; chapter-managed appropriations for sectoral programmes and other programmes under the discretion of the chapter head (minister); EU projects managed by the chapter; centrally managed appropriations, mainly entitlement programmes, transfers to the extrabudgetary funds, to the social security funds and to local government, special larger investment projects and interest payments; and Medium term projection for the budget, central revenues, including tax and non-tax revenues

32 Citizen budget for central subsector 2019: expenditures

33 Citizen budget for central subsector 2019 : revenues

34 Citizen budget for central subsector 2019: social security contribution

35 Citizen budget for central subsector 2019: domestic developments

36 Citizen budget for central subsector 2019: family tax allowance

37 Citizen budget for central subsector 2019: reserves
Rendkívüli kormányzati intézkedések: Az Áht. 21. §-a szerint az I. félévben az RKI 40%-a használható fel, ennél nagyobb felhasználáshoz az Országgyűlés jóváhagyása szükséges. Országvédelmi Alap: A Kvtv. 19. §-a szerint március 31-e után (EDP jelentés) 30,0 Mrd Ft használható fel, amennyiben az EDP hiány a felhasználni kívánt tartalékkal sem haladja meg a hiánycélt, azaz GDP 1,8 %-át. A „maradék” 30,0 Mrd forint szeptember 30-a után használható fel ugyanezen feltétellel. (5) A XV. Pénzügyminisztérium fejezet, 26. cím, 2. alcím, 1. Rendkívüli kormányzati intézkedések jogcímcsoport előirányzatnak az Áht. 21. § (3) bekezdésében meghatározott, első félévben felhasználható részéből legalább ,0 millió forint csak az EDP jelentés március 31-ig történő benyújtását követően használható fel, amennyiben a benyújtott EDP jelentésben szereplő EDP-hiány – a felhasználni kívánt tartalékösszeg figyelembevételével – nem haladja meg a GDP 1,8%-át. (6) A XV. Pénzügyminisztérium fejezet, 26. cím, 2. alcím, 1. Rendkívüli kormányzati intézkedések jogcímcsoport előirányzatnak az Áht. 21. § (3) bekezdése alapján adódó, második félévben felhasználható részéből legalább ,0 millió forint csak az EDP jelentés szeptember 30-ig történő benyújtását követően használható fel, amennyiben a benyújtott EDP jelentésben szereplő EDP-hiány – a felhasználni kívánt tartalékösszeg figyelembevételével – nem haladja meg a GDP 1,8%-át.

38 Role of Fiscal Council it makes comments on the planning and execution of the budget, the use of public funds and the state of public finances makes comments on any issues related to the planning and execution of the budget or the use of public funds it evaluates the state budget and its execution and developments of government debt it supports Parliament’s legislative activities the acceptance of budget bill is dependent on the approval of the Fiscal Council, thus is it has veto power over budget laws the State President could dissolve Parliament if it fails to pass a budget law by the end of March (for any reason), so there is time pressure to get the approval of the Fiscal Council (two out of three council members is needed for approval)

39 Opinion of the Fiscal Council on the draft bill
13 pages Contents: Antecedents, legal basis and publicity of the preparation of the Opinion The Council’s Resolution Justification The Authenticity of the Draft The Expected Implementation of Budget 2015 and 2016 Evaluation of the Goals and Conditions of Budget 2017 Expected Macroeconomic Indicators Revenues and Expenditures of the Central Budget Public Finance Deficit Government Debt Other FC resolution Budget 2017: „The Council’s Resolution At its meeting held on 21st April 2016 – on the basis of the documents submitted by the Government about the draft bill of year 2017 central budget – the Council formulated the following Opinion: As regards the authenticity and feasibility of the draft of the 2017 central budget bill the Council has no such fundamental objections that would justify the indication of nonconcurrence concerning the document submitted for formulating and opinion. According to the Council’s judgement the draft bill is based on a well-established macroeconomic forecast. Following the dynamism of economic growth since 2013 – the annual 2, 9 percent in year 2015 – the 2016 economic growth might be around 2, 5 percent. The 2017 budget is built on a 3, 1 percent economic growth that – considering the expected increase of incoming EU funds and other growth factors, primarily that of consumption – can be regarded as solidly founded. The revenue and expenditure appropriations are basically in harmony with the macroeconomic forecast, the preliminary implementation of year 2015 and the expected trends of 2016 as well as with the governmental actions listed in the draft bill. However, even with these considerations the increase of the VAT and personal income tax appropriation – compared to the preceding year – can be regarded as stretched and the further increase of the efficiency of tax collection is necessary to ensure the implementation of the increased appropriations. On the basis of the macroeconomic course and the budget appropriations the Council establishes that the 2, 4 percent GDP proportionate targeted deficit for 2017 – calculated by EU methodology – is in harmony with the economic processes described by the draft budget bill and the planned revenue and expenditure appropriations. The targeted public finance deficit is in harmony with the correction arm of the fiscal regulations of the European Union and Point b) Indent (2) of § 3/A of the Stability Act. However, with the increase of the targeted deficit the structural deficit shall also increase. Hence, the Council considers it justified that in the justification part of the bill the Government should present that the targeted deficit according to the budget bill meets the criteria of the EU concerning the structural deficit as well as the requirement stipulated by Point a) Indent (2) . § 3/A of the Stability Act arising from the above regulation. The Council considers it positive that the central budget separates the operational and accumulation budgets as well as that of the EU developments, as this contributes to the transparency of the processes and the separation of costs laying the foundations for long-term growth from current expenditures. The Council finds that the trends of the year 2016 debt indicator (73, 5 percent of the GDP) and of the year 2017 debt indicator (71, 9 % of the GDP) calculated at unchanged rate and according to the stipulations of the Stability Act, are in harmony with the economic and budgetary processes expected for year 2016 and those planned for year This means that the debt rule stipulated by the Basic Law of Hungary shall be met. The planned and expected measure of the debt-rate decrease is in harmony also with the stipulation of the European Union as regards government debt. The Council deems it necessary that the draft budget bill provided three types of reserve systems for unforeseen tasks, expenditures or possible arrears if revenues - i.e. beyond the HUF 120 billion reserved for Extraordinary Governmental Measures, the HUF 50 billion reserved for the Country Protection Fund and the chapters - shall create stability reserves as well, similarly to the practice introduced in Apart from this, from the aspect of government debt rule implementation, the planned decrease of the government debt indicator means an implicit reserve as it is higher by 1, 5 percent that the 0, 1 percent stipulated by the Stability Act. According to the Council, from the aspect of the 2017 targeted deficit it is not the prescription of Point b) Indent (2) § 3/A about the 3 percent ceiling of the GDP but the requirement according to Point a), Ident (2) of § 3/A that has the stricter stipulations as regards the determination of the mid-range budgetary goal. Thus the Council would deem it practical if in the Justification section of the bill the Government presented, with regard to what type and measure of risks had it planned the reserves. The Council hereby shall authorise its Chairman to publish its Opinion as regards the draft budget bill and present the Opinion before the National Assembly, with regards to its relations concerning the submitted draft bill.”

40 Independent Fiscal Institutions
EU* HU Fiscal political rule Deficit limit 5 Stabilization fund 3 Primary expenditure limit 2 General balance 20 X  Debt limit 7 X Sustainability Basis of establishment Constitution 6 Law 12 Political, agreement Public law rating Independent or parliamentary organization 22 Belonging to the executive branch 1 Sanctions IFI-s can use Veto right 0  Loss of reputation Legal For the EU countries, the table shows the number of countries that apply to the given feature. THE FUNDAMENTAL LAW OF HUNGARY: Article 3 The President of the Republic, while simultaneously setting a date for new elections, may dissolve the National Assembly if the National Assembly, when the mandate of the Government terminates, fails to elect the person proposed for Prime Minister by the President of the Republic within forty days of the presentation of the first proposal, or the National Assembly fails to adopt the central budget for the year in question by 31 March.” Source: Árpád Kovács: Rule-Based Budgeting: The Road to Budget Stability, MoF calculation; *The table shows the number of countries that apply to the given feature

41 Role of State Audit Office of Hungary
the State Audit Office of Hungary is the supreme financial and economic audit institution of the National Assembly the State Audit Office is the only non-governmental body that has an oversight of the budget from January to December the SAO also prepares analyses on budgetary processes of the current year and the year preceding the current year it has a comprehensive and objective view the final accounts bill, the reliability of data in the budget it enforces the provisions of the Fundamental Law pertaining to public debt and it monitors the calculations underlying the planned public debt figure it provides an opinion on the budget proposal, and also prepares analyses for the Fiscal Council

42 SAO opinion on the Budget Bill of Hungary (2017)
Contents: Summary Purpose of the audit Field of audit The context and relevance of control, Significant issues of report Scope and approach of control Attachments: Appendix: Glossary Appendix: A partially substantiated and risky budget revenues Appendix: partly grounded in the budget, is unfounded and risky expenditure appropriations Appendix: Trend Analysis: Compliance is required of a good government based on requirements of some selected indicators The 2017 budget appropriation bill is substantiated, in case of the realization of the macroeconomic forecasts taken into account while planning the budget the revenue appropriation is feasible – concluded the State Audit Office of Hungary. The appropriation bill on Hungary’s 2016 central budget is in accordance with the public debt requirement set down in the Fundamental Law and also with the requirements of the legislation governing public finances with the exception of one provision. In its opinion the SAO draws the attention to that the multi-element system of budgetary reserves, as well as the expansion of opportunities for budget restructuring improved the security and flexibility of budget implementation, the management of the risks revealed, as well as that the triple grouping of the incomes and revenues further enhances the transparency of the budget. In fulfilment of its statutory duty, the SAO has prepared its opinion on the appropriation bill on Hungary’s 2017 central budget. The opinion of the SAO is about a given status of the drafting the budget. SAO audit is aiming at to contribute to the adoption of a substantiated budget capable of managing risks arising realistically through enacting the missing legal regulations and adopting the amendment proposals. The SAO qualified the 99.9 per cent of the audited revenue appropriations as substantiated, 0.1 per cent of them as partly substantiated, the 99.2 per cent of the expenditure appropriations as substantiated, 0.5 per cent of expenditure appropriations as partly substantiated and 0.3 per cent of them as unsubstantiated. The audit considers risky the realization of revenue appropriations amounting to EUR 5.6 billion and noted the risk that certain expenditures with a total of £ 62.7 billion exceeds the amount of the proposed appropriations, though the reserves provide opportunity to the treatment thereof. In its opinion, the SAO draws the attention to that in terms of meeting the budgetary target it is an overall risk that 53.3% of the expenditure appropriations is of the so-called top open that can be exceeded without a change in the law. Based on substantive testing of all appropriations, the SAO found that four of these were drafted without due substantiation. The SAO found, that the preparation of the budget appropriation bill, its compilation, structure and content was in line with the prescriptions of the relevant legal regulations. A new element enhancing the transparency of the budget is included in the bill, i.e. the triple grouping of revenue and expenditure appropriations (operational, domestic accumulation, EU development revenues and expenditures) The 2017 budget appropriation bill sets out HUF billion deficit of the central subsystem, which is composed - in addition to the planned break-even operating budget – the planned deficit of the accumulation budget of HUF billion and the EU development budget is HUF billion. According to the EU methodology this corresponds to a 2.4% deficit. Based on the date of the budget appropriation bill the national debt to GDP ratio will decline to 71.9% by the end of 2017, showing a 1.6 percentage point decrease compared to the expected 73.5% in the last day of the year 2016. Accordingly, the budget appropriation bill meets the public debt rule set out in the Fundamental Law. In its opinion the SAO points out that at the same time the structural balance of the general government rate is less favourable than the medium-term fiscal deficit target, which is not in accordance with the realization of the medium-term budgetary objective despite of what is stated in the stability law, but this does not pose a risk in terms of the execution of the budget.

43 Parlamentary debate of the budget proposal
By second half of October The Fiscal Council and the State Audit Office submits its opinion The general debate starts at least 13 days after submiting November Detailed debate before the comittee’s In-depth debate in committees, submission of proposal for amendments and reports by the committees Goverment list of amendments supported December The Comittee of Legislation (which is in this case is the Comitee of Budget) submits the summary of proposed amendments Submiting the unified proposal of the Budget Bill Debate on committee reports, the summary report and the summary of proposed amendments unified proposal of the Budget Bill is sent to the Fiscal Council The budget is sent to the Fiscal Council for its opinion. The Fiscal Council has to give its consent for the closing vote to take place. Closing vote

44 The parlament approval of the budget
The Parliament has the decision about the budget. In the procedure the Parliament can change the budget, not only accept or reject it. E.g. in the Parliamentary phase both revenues and expenditures were increased while deficit remained the same. The debate on the budget bill is conducted by all standing committees. The cornerstones of the budget (the total revenue, the total expenditure and the headline deficit) can be modified only by the Budget Committee’s proposal. In the final stages of budget approval before the Parliament, the Fiscal Council can block the approval of the budget if the constitutional rule of public debt is not met (in this case the Government puts forward amendments to comply with the rule, and the Fiscal Council will decide again on allowing the approval). There are no final deadlines for the parliamentary approval of the budget, but constitutional rules allow the President of Republic to hold new parliamentary elections if the budget is not approved until march 31. of the budget year.

45 Standing Committees Number of members Name of Committee
Committee on European Affairs 9 Committee on Sustainable Development 10 Committee on Economics 15 Committee on Defence and Law Enforcement Committee on Justice 13 Committee on the Budget 14 Committee on Culture Committee on Foreign Affairs 12 Committee on Immunity 6 Committee on Agriculture 11 Committee on National Security 7 Committee on National Cohesion Committee on Social Welfare Committee on Business Development

46 Number of amendments in 2018
1198 46 1152 MSZP 53 Jobbik 1004 Független 41 LMP 91 Fidesz-KDNP 9 Withdrawn amendments Amendments from the ruling parties Amendments from the opposition parties

47 Budget Bill execution

48 Process of budgetary execution
Budgetary institutions (adjust their budget) Treasury (monitors the use of appropriations) Amendmends during the year Parliament (modify laws) Chapters (modify within own responsibility) Institutions (modify within own responsibility) Government (modify by government decision)

49 Interim Planning: Swedish model
2-szer közlünk várhatót, de minden hónapban vizsgáljuk a teljesülést, mind3 alrendszerre

50 Quick report and monitoring
Detailed information on the state of central government finances at the end of May 2018 Quick report

51 Amendment and transfer of appropriations
Amendment of appropriations Central budgetary institutions and chapter-administered expenditure appropriations can be increased in parallel with the revenue appropriations and the unspent funds (carry overs or residuals). Central budgetary institutions and chapter-administered revenue appropriations can only be increased in the case of overfulfilment. Transfer of appropriations within the central budget As a general rule, the Government can transfer, but in case of the "constitutional" chapters (Parliament, Constitutional Court, court, etc.) transfers can be made only by the Parliament. Within the chapter transfers can be initiated by the body managing the chapter. Between chapters the two managing body can initiate transfers in certain cases according to the Public Finance Act.: If savings occur or the transfer is related to changes in fulfilment of public services - the authorization of the Minister of Finance is required. (in case of transfers between and within chapters as well) A központi kezelésű előirányzatok, az elkülönített állami pénzalapok és a TB bevételi előirányzatok módosítani kell, ha az adott költségvetési bevételre vonatkozó jogszabályi előírások év közben változnak. Egyebekben módosítás nélkül túl- és alulteljesülhetnek A költségvetési szervi és fejezeti kezelésű költségvetési bevételi előirányzat csak a túlteljesítés esetén növelhető, bevételek elmaradása esetén pedig csökkentendő a kiadások egyidejű változtatása mellett: kivéve támogatások államháztartáson belülről és átvett pénzeszközök, megszűnt intézmény előirányzatainak átvétele, ahol túlteljesülés előtt is növelhető, többi költségvetési bevételnél a többlet az irányító szerv (központban adott összeghatár felett az NGM) engedélyével használható fel, központi, irányító szervi támogatás (finanszírozás) is nőhet Kormány, irányító szerv döntésével. Összeghatár Ávr. 35. § (2) *  Ha a többletbevétel a Kormány irányítása alá tartozó fejezetbe sorolt költségvetési szerv, fejezeti kezelésű előirányzat esetén eléri az eredeti előirányzat 30%-át, de legalább az ötven millió forintot, az ezt meghaladó többletbevétel az államháztartásért felelős miniszter előzetes engedélyével használható fel. A költségvetési szervi és fejezeti kezelésű kiadási előirányzatok a költségvetési bevételi előirányzatokkal és a maradvánnyal együtt emelhetők, a korábbiak szerint. A növelés főszabályként nem irányulhat a személyi juttatások növelésére, kivéve Ávr-ben tételesen meghatározott eseteket.

52 Residuals/unspent funds/carry overs
It is very typical that a given appropriation is not spent, so a residual arises. The use of residuals It may work divergent in different organizations and subsystems: in the case of central budgetary institutions and chapter-administered appropriations residuals should be transferred to the Central Residual Settlement Fund. On its further use, Government decision has to be taken based on the presentation by the Minister of Finance central budgetary appropriations: there is no residual (on the last day of the year, the accounts are closed at 0), extrabudgetary funds: the authorization of the Ministry of Finance is required, social security funds: according to the Year-end report of the implementation of the budget, local governments: local decision, there is no central rule. (3) A központi költségvetésről szóló törvény eltérő rendelkezése hiányában a fejezetet irányító szerv az általa irányított fejezetbe sorolt *  a) költségvetési szervek kiadási előirányzatai terhére előirányzat-átcsoportosítást hajthat végre, ha a költségvetési szerv kiadási előirányzatain megtakarítás keletkezik vagy az átcsoportosítás a közfeladatok változásával, költségvetési szervek alapításával, átalakításával vagy megszüntetésével kapcsolatban szükséges, b) fejezeti kezelésű előirányzatok és elkülönített állami pénzalapok kiadási előirányzatai terhére előirányzat-átcsoportosítást hajthat végre, ha ba) azokon megtakarítás keletkezik, bb) az előirányzat-átcsoportosítás a közfeladatok változásával kapcsolatban szükséges, bc) a fejezeti általános tartalék fejezeten belüli előirányzat-átcsoportosítása előre nem valószínűsíthető és nem tervezhető költségvetési kiadás teljesítéséhez szükséges, bd) az az államháztartás központi alrendszerébe tartozó költségvetési szerv részére költségvetési támogatás biztosításával kapcsolatban szükséges, be) az európai uniós források felhasználásához kapcsolódik vagy bf) *  elkülönített állami pénzalap és fejezeti kezelésű előirányzat javára feladatátadással kapcsolatban szükséges. (4) A (3) bekezdés alapján a) fejezeten belüli előirányzat-átcsoportosításra a fejezetet irányító szerv egyoldalú jognyilatkozata alapján, b) fejezetek közötti előirányzat-átcsoportosításra az érintett fejezetet irányító szervek megállapodása alapján *  kerülhet sor. (5) *  Az államháztartásért felelős miniszter előzetes hozzájárulására van szükség a (3) bekezdés a) pontja szerinti előirányzat-átcsoportosításhoz, ha az a Kormány irányítása alá tartozó fejezetek között történik, és a (3) bekezdés b) pont ba) és bb) alpontja szerinti, a Kormány irányítása alá tartozó fejezeten belüli és az ilyen fejezetek közötti előirányzat-átcsoportosításhoz.

53 The use of residuals It may work divergent in different organizations and subsystems: in the case of central budgetary institutions and chapter-administered appropriations residuals should be transferred to the Central Residual Settlement Fund. On its further use, Government decision has to be taken based on the presentation by the minister responsible for public finances central budgetary appropriations: there is no residual (on the last day of the year, the accounts are closed at 0), extrabudgetary funds: the authorization of the Ministry of Finance is required, social security funds: according to the discharge of the implementation of the budget, local governments: local decision, there is no central rule. központi költségvetési szervek, fejezeti kezelésű előirányzatok 150. § (4) Az államháztartás központi alrendszerébe tartozó költségvetési szerv és a fejezeti kezelésű előirányzat kötelezettségvállalással nem terhelt költségvetési maradványát az éves költségvetési beszámolónak a Kincstár által működtetett elektronikus adatszolgáltató rendszerben a Kincstár által történő elfogadását, de legkésőbb az elfogadásra rendelkezésre álló határidő elteltét követő tíz munkanapon belül a Központi Maradványelszámolási Alap előirányzat javára be kell fizetni. 152. § (1) A fejezetet irányító szerv a fejezetbe sorolt költségvetési szervek és fejezeti kezelésű előirányzatok kötelezettségvállalással terhelt, azonban a költségvetési évet követő év június 30-áig pénzügyileg nem teljesült költségvetési maradványáról a költségvetési évet követő év augusztus 15-éig elszámolást készít az államháztartásért felelős miniszternek. 2) A meghiúsult kötelezettségvállalás miatt kötelezettségvállalással nem terhelt költségvetési maradványt az (1) bekezdés szerinti elszámolás elküldését követő tíz munkanapon belül a Központi Maradványelszámolási Alap előirányzat javára be kell fizetni. 153. § * A Központi Maradványelszámolási Alap kiadási előirányzatának előirányzat átcsoportosítással történő felhasználásáról az államháztartásért felelős miniszter előterjesztése alapján a Kormány egyedi határozatban rendelkezik

54 Size and use of reserves 2019
Country Protection Fund is a special budget reserve that serves as risk insurance against unforeseen events that could cause a deficit overshoot. Reserves for extraordinary government measures is a on the one hand a contingency reserve for unforeseen expenditure (natural disasters) and on the other hand for foreseen expenditure, but not yet decided/announced (policy reserve) Rendkívüli kormányzati intézkedések: Az Áht. 21. §-a szerint az I. félévben az RKI 40%-a használható fel, ennél nagyobb felhasználáshoz az Országgyűlés jóváhagyása szükséges. Országvédelmi Alap: A Kvtv. 19. §-a szerint március 31-e után (EDP jelentés) 30,0 Mrd Ft használható fel, amennyiben az EDP hiány a felhasználni kívánt tartalékkal sem haladja meg a hiánycélt, azaz GDP 1,8 %-át. A „maradék” 30,0 Mrd forint szeptember 30-a után használható fel ugyanezen feltétellel. (5) A XV. Pénzügyminisztérium fejezet, 26. cím, 2. alcím, 1. Rendkívüli kormányzati intézkedések jogcímcsoport előirányzatnak az Áht. 21. § (3) bekezdésében meghatározott, első félévben felhasználható részéből legalább ,0 millió forint csak az EDP jelentés március 31-ig történő benyújtását követően használható fel, amennyiben a benyújtott EDP jelentésben szereplő EDP-hiány – a felhasználni kívánt tartalékösszeg figyelembevételével – nem haladja meg a GDP 1,8%-át. (6) A XV. Pénzügyminisztérium fejezet, 26. cím, 2. alcím, 1. Rendkívüli kormányzati intézkedések jogcímcsoport előirányzatnak az Áht. 21. § (3) bekezdése alapján adódó, második félévben felhasználható részéből legalább ,0 millió forint csak az EDP jelentés szeptember 30-ig történő benyújtását követően használható fel, amennyiben a benyújtott EDP jelentésben szereplő EDP-hiány – a felhasználni kívánt tartalékösszeg figyelembevételével – nem haladja meg a GDP 1,8%-át.

55 Supplementary budget Supplementary budget is necessary (de jure) if
non-complying with debt rule legislation changes lower revenue/worse deficit projected than planned Main reasons of the supplementary budget (de facto) additional revenues policy initiatives ad hoc emergency needs If there are additional revenues, the government could support economic recovery, using within-year savings for spending on priority areas, keeping the deficit target constant. Total amount of supplementary budgets (as a share of GDP) 2014: 0,50% 2015: 0,40% 2016: 1,30% 2017: 0,50% 5. § (1) *  A Kormány a féléves adatok alapján felülvizsgálja az adósság-szabály érvényesülését, melynek eredményéről tájékoztatja az Országgyűlés illetékes bizottságát és a Költségvetési Tanácsot. A felülvizsgálat eredményeként a Kormány a központi költségvetésről szóló törvény módosítására törvényjavaslatot nyújt be az Országgyűlésnek, ha a) a viszonyítási év utolsó napján fennálló államadósság, illetve a viszonyítási év bruttó hazai termék előzetes tényadatai, vagy b) az államháztartási, makrogazdasági folyamatok alapján a költségvetési év utolsó napján várható államadósság, illetve a költségvetési év bruttó hazai termék várható adata olyan irányban tér el a központi költségvetésről szóló törvényben meghatározott adatoktól, amely az államadósság-mutató növekedését eredményezné. 30. §(3) *  A költségvetési bevételi előirányzatok - Kormány rendeletében és a 31. § (1) bekezdésében meghatározott kivételekkel - kizárólag azok túlteljesítése esetén növelhetők, és a költségvetési bevételek tervezettől történő elmaradása esetén azokat csökkenteni kell. 31. § *  (1) A központi kezelésű előirányzatok, az elkülönített állami pénzalapok és a társadalombiztosítás pénzügyi alapjai költségvetési bevételi előirányzatait - és szükség szerint ezzel összhangban a költségvetési kiadási előirányzatait - módosítani kell, ha az adott költségvetési bevételre vonatkozó jogszabályi előírások év közben változnak 40. § (1)[3] A Kormány a központi költségvetés költségvetési egyenlegének, vagy a Gst. 4. § (1) bekezdése alapján a központi költségvetésről szóló törvényben megállapított értékeknek a tervezettől eltérő, kedvezőtlen alakulása esetén a központi költségvetés költségvetési kiadási előirányzatait - a (2) bekezdésben foglalt kivételekkel - zárolhatja, csökkentheti, törölheti azon költségvetési kiadási előirányzatok kivételével, amelyek évközi módosításának, átcsoportosításának jogát az Országgyűlés magának tartotta fenn.[4] [3] Módosította: évi XCIX. törvény 54. § 8., 34. [4] Lásd: 1428/2012. (X. 8.) Korm. határozat, 1635/2012. (XII. 18.) Korm. határozat, 1259/2013. (V. 13.) Korm. határozat, 1381/2014. (VII. 17.) Korm. határozat. Rendkívüli kormányzati intézkedések: Az Áht. 21. §-a szerint az I. félévben az RKI 40%-a használható fel, ennél nagyobb felhasználáshoz az Országgyűlés jóváhagyása szükséges. Országvédelmi Alap: A Kvtv. 19. §-a szerint március 31-e után (EDP jelentés) 30,0 Mrd Ft használható fel, amennyiben az EDP hiány a felhasználni kívánt tartalékkal sem haladja meg a hiánycélt, azaz GDP 1,8 %-át. A „maradék” 30,0 Mrd forint szeptember 30-a után használható fel ugyanezen feltétellel. (5) A XV. Pénzügyminisztérium fejezet, 26. cím, 2. alcím, 1. Rendkívüli kormányzati intézkedések jogcímcsoport előirányzatnak az Áht. 21. § (3) bekezdésében meghatározott, első félévben felhasználható részéből legalább ,0 millió forint csak az EDP jelentés március 31-ig történő benyújtását követően használható fel, amennyiben a benyújtott EDP jelentésben szereplő EDP-hiány – a felhasználni kívánt tartalékösszeg figyelembevételével – nem haladja meg a GDP 1,8%-át. (6) A XV. Pénzügyminisztérium fejezet, 26. cím, 2. alcím, 1. Rendkívüli kormányzati intézkedések jogcímcsoport előirányzatnak az Áht. 21. § (3) bekezdése alapján adódó, második félévben felhasználható részéből legalább ,0 millió forint csak az EDP jelentés szeptember 30-ig történő benyújtását követően használható fel, amennyiben a benyújtott EDP jelentésben szereplő EDP-hiány – a felhasználni kívánt tartalékösszeg figyelembevételével – nem haladja meg a GDP 1,8%-át.

56 Financing issues… Stock – flow - adjustment
Financing the budget balance is only one issue in debt management. Debt dynamics are driven mainly by the deficit but there are other drivers as well: These are elements beyond deficit, the so called Stock-flow-adjustment. There are Stock elements that can change independently i.e.: revaluation due to FX rate change. Flow elements can cause debt increase or decrease, i.e.: financing from liquid assets. Adjustment elements are special statistical corrections in the debt i.e.: the lease contract of the Hungarian Gripen fighter aircrafts When debt is the determining factor within the fiscal rules framework, we can assume that there is significant SFA One of the biggest SFA element is the difference between cash deficit and ESA deficit. The reason behind this is that in case of EU funded projects the advancements payed by the government will only be refunded by the EU when realization of the project can be verified by invoices which takes time, years even. However in ESA statistics the expenditure and revenue for the EU projects are due in the same year and divided among the whole 7 year program period. In cash budget the initial period will result a significantly higher cash deficit and higher debt while significantly lower deficit and robust debt reduction in the final years.

57 Financing issues… Planning vs. Outcome: The difference between planned and actual deficit. In general the actual cash balance of the budget shows bigger deviations from the planned than the actual ESA balance In some cases it is even in the opposite direction. This means that in some year despite the seemingly good ESA deficit, debt management faces challenges

58 Limit on debt accumulation…
… is regulated on multiple levels General Government level Subsectors Of GG Subsector of Local Government Sector Limited by fiscal rules and national law Local Governments: With permission of the Government Business corporations and other ESA organizations classified in the government sector: With permission of Minister of Finance With permission of Minister of Finance Debt accumulation is limited by different regulations On the highest level the fiscal rules of the EU and of Hungary ensures that the debt level is decreasing However debt dynamics are not only driven by the budget balance as seen previously Local governments and institutions classified into the government sector have their own authority to a certain extent Debt accumulation of subsectors of the general government should be controlled The Hungarian regulation requires that new debt (i.e.: loans) can only be issued/generated with the consent of the Government (for Local Governments) or the Minister of Finance (for institutions) Even institutions outside the government sector but owned by Local Governments must ask for permission

59 Debt control during execution
- Based on regulations - Controlled by Fiscal Council - Approved by Parliament Planning - Based on first 6 months data, the Government evaluates End-of-Year expected debt level and notifies Fiscal Council - If needed: budget amendment Execution No special rules: There is no provision for action to be taken in the ex post violation of the debt rule. - Publishing final debt ratio in the final report act Year-end report During the budget year the Hungarian law requires the revision of the End-of-Year debt target. Based on the fact data of the first 6 months The result of the revision is sent to the Fiscal Council and to the competent committee of the National Assembly If the debt reduction requirement is likely to be missed, the government must hand in a budget amendment

60 Procedure for Year-end report

61 Procedure for preparing Year-end report
The procedure for debate and approval by the Parlament is identical with process of formulation of budget. Ministry of Finance send the proposal to the Parlament Sebtember 2018 Gorvernment debate the proposal September 2018 The State Audit Office receive the proposal 27 July 2018 Ministry of Finance prepare the proposal for Year-end Report 13 July 2018 Treasure send the summarized data to Ministry of Finance 2 July 2018 Line ministries check the data and prepare the chapter explanation 26 June 2018 Ministry of Finance set the process of closing the accounts 19 June 2018 Budgetary institutions send their Year-end Financial Statments to the Treasury database

62 Elements of Year-end report I.
A. Proposal on execution of the Budget B. Annexes of Proposal Annex 1: Execution of central government’s budget by chapters Annex 2: ,,Support of local governments’ general operation and sectoral tasks” title’s implementation of appropriation and cash payments Annex 3: „Supplementary grants of local governments’ operating tasks ” title’s implementation of appropriation and cash payments Annex 4: „Supplementary transfers to local governments’ accumulating tasks ” title’s implementation of appropriation and cash payments Annex 5: The use of EU funds C. GENERAL EXPLANATORY STATEMENT OF THE PROPOSAL I. The main features of the government's economic policy, development of public finances 1. The main features of the government's economic policy 2. Evaluation of budgetary processes 3. Functional presentation of the governmental task performance, characteristics of its change 4. Tax and contributional policy

63 Elements of Year-end report II.
II. Appropriations of the central government A. Appropriations of the central budget Appropriations for revenues Appropriations for expenditures B. Deficit and financing of the central governmental subsystem, management of public debt Financing of the central budget The development of the governmental debt C. Operation of extrabudgetary funds Revenue developments The development of expenditures Statement of balance Etc. D. Operation of social security funds Pension Fund Health Fund Staff and personal allowances

64 Elements of Year-end report III.
III. Operation of local governments General evaluation of local governments’ operation Developement in assets IV. Reporting and informing obligations set by law Re-allocation of budget appropriations Reserve appropriations State guarantees V. Authorizations VI. Debt and deficit of the governmental sector according to the methodology of the European Union E. Detailed explanation of the proposal F. Annexes to the general explanation (main tables) Macroeconomic indicators Summary of information on national budget Performance of the government agencies and chapter-administered appropriations’ carry over Data on the state property Data on stock of guarantees undertaken by the government EU statistics on the governmental sector The development of the main indicators of the governmental sector Summary of Hungary’s governmental financial statistics in EU data services Functional expenditures of the governmental sector in EU countries G. Evaluation of Chapters Ez a teljes lista, nem fért ki az összes: III. Operation of local governments General evaluation of local governments’ operation Implementation of 2017 local governmental budget Developement of assets Functional evolution of expenditures IV. Reporting and informing obligations set by law Re-allocation of budget appropriations Reserve appropriations State guarantees V. Authorizations Implementation of the authorizations specified in the Budget Act VI. Debt and deficit of the governmental sector according to the methodology of the European Union E. Detailed explanation of the proposal F. Annexes to the general explanation (tables) Macroeconomic indicators Summary of information on national budget Public finance data in functional and economic structure Central subsystem’s data in functional and economical structure Government agencies and chapter-administered appropriations’ data Performance of the government agencies and chapter-administered appropriations’ carry over Central appropriations of the central budget Data on the state property Data on government debt and government receivables Data on stock of guarantees undertaken by the government Data in connection with EU Other data on central budget Data of extrabudgetary funds Data of social security funds Data of local governmets EU statistics on the governmental sector The development of the main indicators of the governmental sector Summary of Hungary’s governmental financial statistics in EU data services Developments of the revenues and expenditures in the governmental sector ESA-bridge Revenues and expenditures of the governmental sector in EU countries Functional expenditures of the governmental sector in EU countries G. Chapterly explanations

65 Websites http://ngmszakmaiteruletek.kormany.hu/edp-jelentes

66 Thank you for your attention!