How could Hungary streamline public spending without undermining growth?
Hungary’s new government faces a difficult fiscal inheritance. The budget deficit is projected to widen sharply in 2026, deviating from the consolidation path agreed under European Union fiscal rules. The government plans to preserve costly programmes, expand social spending and reduce taxes for low earners. Reconciling this with fiscal sustainability will require more than incremental adjustments.
A comparison of Hungary’s public spending with that of other EU countries highlights where savings could be achieved with limited economic risk. Total expenditure, at 47% of GDP, is not unusually high – the problem is its composition. Hungary allocates exceptionally high levels of funding to state operating costs and economic affairs, such as energy subsidies and industrial support, while spending comparatively little on social protection and healthcare. International evidence also suggests inefficiencies from weak competition in public procurement, an area where Hungary consistently ranks poorly.
Aligning selected state operational and economic expenditure categories with Central and Eastern European averages could generate savings of around 4.3% of GDP, without reducing social security benefits. Together with gradually declining interest costs and the replacement of universal subsidies with means-tested support, this would create fiscal space to stabilise the budget and reallocate resources towards growth-enhancing priorities such as healthcare, education and targeted social assistance.
The challenge is as much political as technical: delivering a credible spending review, curbing waste and corruption and restructuring parts of the state apparatus – all without losing public trust. But these reforms will be essential to securing Hungary’s growth.
Read the Analysis, ‘Hungary has room to streamline public spending without hurting growth’, by Zsolt Darvas
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