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: 2019-11-20
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Hungary, budget deficit, budgetary assessment, budgetary control, economic policy, gross domestic product, medium-term forecast, multilateral surveillance, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 20.11.2019  COM(2019) 922 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(2019) 941 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 the second subparagraph of Article 10(2) thereof, 

Having regard to the Recommendation from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

In  accordance  with  Article  121  of  the  Treaty,  Member  States  shall  promote  sound 
public finances over the medium term through the coordination of economic policies 
and  multilateral  surveillance  in  order  to  avoid  the  occurrence  of  excessive 
government deficits. 

The  Stability  and  Growth  Pact  is  based  on  the  objective  of  sound  government 
finances as a means of strengthening the conditions for price stability and for strong 
sustainable growth conducive to employment creation. 

In June 2018, the Council found in accordance with Article 121(4) of the Treaty that 
in  2017,  there  had  been  a  significant  observed  deviation  from  Hungary’s  medium-
term  budgetary  objective.  In  view  of  that  established  significant  deviation,  the 
Council  issued  a  Recommendation  on  22  June  20182,  recommending  that  Hungary 
take  the  policy  measures  necessary  to  address  that  deviation.  The  Council 
subsequently  found  that  Hungary  had  not  taken  effective  action  in  response  to  that 
Recommendation and issued a revised Recommendation on 4 December 20183. The 
Council subsequently found that Hungary had not taken effective action in response 
to that Recommendation either. 

On 14 June 2019, the Council decided that in 2018 a significant observed deviation 
from  the  adjustment  path  toward  the  medium-term  budgetary  objective  had  again 
occurred  in  Hungary  and  issued  a  Recommendation  for  Hungary  to  take  the 
necessary  measures  to  ensure  that  the  nominal  growth  rate  of  net  primary 

1 
2 
3 

OJ L 209, 2.8.1997, p. 1. 
OJ C 223, 27.6.2018, p. 1. 
OJ C 460, 21.12.2018, p. 4. 

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government  expenditure4  does  not  exceed  3.3%  in  2019  and  4.7%  in  2020, 
corresponding  to  an  annual  structural  adjustment  of  1%  of  gross  domestic  product 
(GDP) in 2019 and 0.75% of GDP in 2020.5 It also recommended that Hungary uses 
any  windfall  gains  for  deficit  reduction,  while  budgetary  consolidation  measures 
should secure a lasting improvement in the general government structural balance in 
a growth-friendly manner. The Council established a deadline of 15 October 2019 for 
Hungary to report on the action taken in response to that Recommendation. 

On 9 July 2019, the Council recommended Hungary to  ensure that, in 2019 and in 
2020, it complies with the Council Recommendation of 14 June 2019 with a view to 
correcting  the  significant  deviation  from  the  adjustment  path  toward  the  medium-
term budgetary objective.6 

On 26 September 2019, 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 20 
November 2019. Those findings were made public. 

On  15  October  2019,  the  Hungarian  authorities  submitted  the  report  on  effective 
action  in  response  to  the  Council  Recommendation  of  14  June  2019.7  Given  the 
information  provided  by  the  authorities  in  their  report  and  the  overall  assessment 
based on the Commission autumn 2019 forecast, the Council on 20 November 2019 
concluded  that  Hungary  has  not  taken  effective  action  in  response  to  the  Council 
Recommendation of 14 June 2019. 

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

Based  on  the  Commission  2019  autumn  forecast,  Hungary's  structural  balance  is 
projected  to  improve  by  0.5%  of  GDP  in  2019  and  by  a  further  1.2%  of  GDP  in 
2020. As a result, the structural deficit is estimated to be 1.8% of GDP and 1.1% of 
GDP away from the medium-term budgetary objective of 1.5% in 2019 and 1.0% in 
2020. 

(5) 

(6) 

(7) 

(8) 

(9) 

(10) 

In  order  to  bring  Hungary  back  on  an  appropriate  adjustment  path  following  past 
slippages, the annual structural adjustment of 0.75% of GDP for 2020 recommended 
by the Council on 14 June 2019 seems appropriate in light of the overall macro-fiscal 
developments against the backdrop of the expected deceleration of economic activity 
in  the  next  years  as  cyclical  factors,  which  have  been  supporting  growth  in  recent 
years, are expected to gradually wear off. 

4 

5 
6 

7 

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. 
OJ C 210, 21.6.2019, p. 4. 
Council Recommendation of 9 July 2019 on the 2019 National Reform Programme of Hungary and 
delivering a Council opinion on the 2019 Convergence Programme of Hungary (OJ C 301, 5.9.2019, 
p. 101). 
https://ec.europa.eu/info/files/hungary-report-council-recommendations-under-significant-deviation-
procedure_en 

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(11) 

(12) 

(13) 

(14) 

(15) 

(16) 

Based  on  the  Commission  2019  autumn  forecast,  the  required  improvement  of  the 
structural balance by 0.75% of GDP in 2020 is  consistent with the nominal  growth 
rate of net primary government expenditure not exceeding 4.7%. 

The  Commission  2019  autumn  forecast  expects  Hungary’s  structural  deficit  to 
improve  by  1.2%  of  GDP  in  2020,  while  the  expenditure  benchmark  points  to  a 
deviation from the requirement. Taking into account the factors influencing both the 
structural balance and the expenditure benchmark, based on current projections, the 
budget  for  2020  adopted  by  the  Hungarian  government  is  expected  to  deliver  the 
required effort.  

The failure to act upon earlier Recommendations to correct the observed significant 
deviation call for action to put Hungary’s fiscal policy back on a prudent path. 

In  order  to  achieve  the  recommended  budgetary  targets,  it  is  crucial  that  Hungary 
strictly implements the necessary measures and monitors the development of current 
expenditure closely and contains spending sprees at the end of the year. 

The  requirements  issued  in  this  Recommendation  supersede  the  corresponding 
elements set out in the Council Recommendation of 14 June 2019. 

Hungary  should  report  to  the  Council  on  action  taken  in  response  to  this 
Recommendation by 15 April 2020, possibly as part of its Convergence Programme 
submitted pursuant to Article 7 of Regulation (EC) No 1466/97. 

(17) 

It is appropriate that this Recommendation should be made public, 

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 4.7% in 2020, corresponding to an annual 
structural  adjustment  of  0.75%  of  GDP,  thereby  putting  the  Member  State  on  an 
appropriate adjustment path toward the medium-term budgetary objective.  

use  any  windfall  gains  for  deficit  reduction;  compensate  unexpected  revenue 
shortfalls  with  high-quality  permanent  fiscal  measures.  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  2020  on  action  taken  in  response  to  this 
Recommendation.  The  report  should  provide  sufficiently  specified  and  credibly 
announced measures, including the budgetary impact of each of them, with a view to 
complying  with  the  required  adjustment  path,  as  well  as  updated  and  detailed 
budgetary projections for 2020. 

This Recommendation is addressed to Hungary. 

Done at Brussels, 

For the Council 
The President 

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