Recommendation for a COUNCIL RECOMMENDATION with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective in Hungary
Date: 2018-11-21
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Hungary, budget deficit, budgetary assessment, budgetary control, economic growth, gross domestic product, medium-term forecast, public expenditure, structural adjustment

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   EUROPEAN COMMISSION  Brussels, 21.11.2018  COM(2018) 805 final  Recommendation for a COUNCIL RECOMMENDATION with a view to correcting the significant observed deviation from the adjustment path toward the medium-term budgetary objective   in Hungary {SWD(2018) 504 final}  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

with a view to correcting the significant observed deviation from the adjustment path 
toward the medium-term budgetary objective  

in Hungary 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 121(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular 10(2), second sub-paragraph, thereof, 

Having regard to the recommendation from the European Commission, 

Whereas: 

(1) 

(2) 

On 22 June 2018, the Council decided in accordance with Article 121(4) of the Treaty 
on  the  Functioning  of  the  European  Union  (‘TFEU’)  that  a  significant  observed 
deviation  from  the  adjustment  path  toward  the  medium-term  budgetary  objective 
existed  in  Hungary  and  issued  a  recommendation  for  Hungary  to  take  the  necessary 
measures  to  ensure  that  the  nominal  growth  rate  of  net  primary  government 
expenditure2  does  not  exceed  2,8  %  in  2018,  corresponding  to  an  annual  structural 
adjustment of 1,0 % of GDP.  3  It  also recommended that Hungary uses any windfall 
gains  for  deficit  reduction,  while  budgetary  consolidation  measures  should  ensure  a 
lasting improvement in the general government structural balance in a growth-friendly 
manner. The Council established a deadline of 15 October 2018 for Hungary to report 
on the action taken in response to that Recommendation. 

On  13  July  2018,  the  Council  recommended  Hungary  to  ensure  that,  in  2018,  it 
complies with the Council Recommendationa of 22 June 2018 with a view to correct 
the significant deviation from the adjustment path toward the medium-term budgetary 
objective.4  For  2019,  Hungary  was  recommended  to  ensure  that  the  nominal  growth 
rate of net primary government expenditure does not exceed 3,9 %, corresponding to 
an annual structural adjustment of 0,75 % of GDP.  

1  OJ L 209, 2.8.1997, p. 1. 
2  Net  primary  government  expenditure  is  comprised  of  total  government  expenditure  excluding  interest 
expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary 
changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed 
over a four-year period. Discretionary revenue measures or revenue increases mandated by law are factored 
in. One-off measures on both the revenue and expenditure sides are netted out. 

3  OJ C 223, 27.6.2018, p. 1. 
4  Council  Recommendation  of  13  July  2018  on  the  2018  National  Reform  Programme  of  Hungary  and 
delivering a Council opinion on the 2018 convergence Programme of Hungary (OJ C 320, 10.9.2018, p.72) 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

 On 18 and 19 September 2018, the Commission undertook an enhanced surveillance 
mission  in  Hungary  for  the  purpose  of  on-site  monitoring  under  Article  -11(2)  of 
Regulation (EC) No 1466/97. After having transmitted its provisional findings to the 
Hungarian  authorities  for  comments,  the  Commission  reported  its  findings  to  the 
Council on 21 November 2018. These findings were subsequently made public.  

On  15  October  2018,  the  Hungarian  authorities  submitted  the  report  on  effective 
action  in  response  to  the  Council  Recommendation  of  22  June  2018.5  Given  the 
information  provided  by  the  authorities  in  their  report  and  the  overall  assessment 
based  on  the  Commission  autumn  2018  forecast,  the  Council  on  21  November  2018 
concluded  that  Hungary  has  not  taken  effective  action  in  response  to  the  Council 
Recommendation of 22 June 2018.  

In  light  of  the  absence  of  effective  action  by  Hungary  and  the  cumulated  high 
deviation  by the latter from  the appropriate adjustment  path  toward its  medium-term 
budgetary  objective,  it  is  appropriate  to  address  to  that  Member  State  a  revised 
recommendation under Article 121(4) TFEU on the appropriate measures to be taken. 

Based on the Commission 2018 autumn forecast, Hungary's structural deficit increased 
by 1,7 % of GDP to 3,4 % in 2017 and it is projected to deteriorate further by 0,4 % of 
GDP to  3,8 % in 2018. As a result,  the structural  deficit is  estimated to be 2,3 % of 
GDP away from the medium-term budgetary objective of 1,5 % in 2018.  

In  order  to  correct  for  the  cumulated  deviations  and  to  bring  Hungary  back  on  an 
appropriate  adjustment  path  following  past  slippages,  an  additional  and  persistent 
effort should complement the recommended annual structural adjustment of 0,75 % of 
GDP  for  2019  set  out  in  the  Council  Recommendation  addressed  to  Hungary  on  13 
July  2018.  An  additional  effort  of  0,25  %  of  GDP  seems  appropriate  given  the 
magnitude  of  the  observed  significant  deviation  from  the  recommended  adjustment 
path toward the medium term objective. It will accelerate adjustment back towards the 
medium-term budgetary objective.  

The  required  improvement  of  the  structural  balance  by  1,0  %  of  GDP  in  2019  is 
consistent  with  the  nominal  growth  rate  of  net  primary  government  expenditure  not 
exceeding 3,3 % in 2019. 

The structural improvement of 1,0 % of GDP in 2019 translates into a need to adopt 
measures  of  a  total  yield  of  0,5  %  of  GDP  in  structural  terms  as  compared  to  the 
current  2019  baseline  of  the  Commission  2018  autumn  forecast,  given  projected 
improvement of the structural balance in 2019. 

(10)  The  requirements  for  2019, 

the 
in 
corresponding elements set out in the fiscal recommendation contained in the Council 
Recommendation addressed to Hungary on 13 July 2018. 

this  recommendation,  supersede 

issued 

(11)  Hungary  should  report  to  the  Council  on  action  taken  in  response  to  this 
recommendation  by  15  April  2019,  possibly  as  part  of  its  Convergence  Programme 
submitted pursuant to Article 7 of Regulation (EC) No 1466/97.  

(12) 

It is appropriate that this recommendation should be made public, 

5  https://ec.europa.eu/info/files/hungary-report-council-recommendations-under-significant-deviation-

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HEREBY RECOMMENDS THAT HUNGARY: 

(1) 

(2) 

(3) 

take  the  necessary  measures  to  ensure  that  the  nominal  growth  rate  of  net  primary 
government expenditure does not exceed 3,3 % in 2019, corresponding to an annual 
structural  adjustment  of  1,0  %  of  GDP,  thereby  putting  thery  Member  State  on  an 
appropriate adjustment path toward the medium-term budgetary objective.  

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. 

report  to  the  Council  by  15  April  2019  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 2019. 

This recommendation is addressed to Hungary. 

Done at Brussels, 

For the Council 
The President 

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