Part I — Situation overview

After a three-day government session the government decided on new fiscal rules, and Prime Minister Péter Magyar disclosed the real state of the inherited public finances: according to him this year’s budget deficit would have exceeded 8 percent without EU funds, and even together with the incoming EU money it may remain above 7 percent. This sharply differs from the deficit trajectory that the previous government communicated — the announced deficit target (the annual minus planned into the budget in advance, as a share of gross domestic product, that is GDP) was first 3.7, then 5 percent. At the same time the Prime Minister ruled out austerity, and on the currency market the forint strengthened spectacularly against the dollar in precisely these days.

The topic is not new, but it has now reached a sharp turning point. In recent months several analyses have dealt with the inherited deficit and the 2030 euro-accession goal; the present announcement is new in so far as the government has published for the first time a concrete deficit figure far higher than before, and at the same time announced a rule-based framework. The tension is clear: the government has undertaken the correction of the deficit trajectory while planning no austerity — that is, the consolidation has to be managed not from a crude cutting of expenditure, but from elsewhere.

In MIAK’s reading this tension is not insoluble, but only if we achieve fiscal discipline not at the expense of the weakest, but through the systematic improvement of the quality of expenditure. The record deficit is an inherited problem; the responsible answer is neither its denial nor panic-stricken trimming, but a transparent, data-driven correction path that keeps credibility-restoration and social security in view at the same time.

Part II — Literature foundation

Before turning to MIAK’s concrete proposals it is worth fixing the scientific frame within which the deficit trajectory can be managed. János Kornai (an economist of Hungarian origin, the developer of the theory of the soft budget constraint) in his work A hiány (Economics of Shortage, 1980) described the mechanism in which the state regularly bails out the losing economic actor, so that the actor’s finances become detached from its own solvency — this is the soft budget constraint, the lasting source of lax expenditure discipline. Carmen Reinhart and Kenneth Rogoff (Harvard economists, researchers who worked through eight centuries of the history of financial crises) in their work This Time Is Different showed, on the data of 66 countries, that before every debt crisis the illusion of “this time is different” appears — decision-makers believe that the earlier patterns do not apply to them. Olivier Blanchard (a French macroeconomist, former chief economist of the IMF) nuances this: the sustainability of the deficit depends on the interest-rate environment, so it is not the mere existence of the deficit but its dynamics and the interest–growth relationship that are decisive. The detailed literature treatment — by author, with quotations — can be found in section 6.4 Literature in detail.

Part III — MIAK’s concrete proposal

MIAK proposes three measurable measures with which the deficit trajectory can be corrected without austerity.

3.1 Zero-based expenditure review (launched within 12 months)

According to MIAK the key to consolidation is not the linear reduction of expenditure, but the screening of the quality of expenditure. The G21 state expenditure review works on the principle of organised abandonment: every larger budget item is examined not with the question “by how much should we raise it?”, but with “if we were not doing it today, would we start?”. What does not pass this test comes under gradual phase-out, and the freed-up resource is reallocated into higher-return programmes. Linked to this is the G20 impact-assessment system (Drucker audit — an ex post balance of whether the measure really brought the expected result): for items above 50 billion forints a mandatory follow-up measurement within 18 months. In this way the deficit can be reduced without valuable services being harmed — room for manoeuvre arises precisely from filtering out low-efficiency expenditure.

3.2 A fixed debt-sustainability framework (with the 2027 budget)

Credibility-restoration is lasting if it is not a one-off promise but an institutionalised rule. MIAK proposes the G23 government-debt sustainability framework: an annual, public debt report, an early-warning system, and an automatic fiscal brake (a pre-fixed rule that orders expenditure restraint above a debt threshold). This is balanced by the G15 anticyclical fiscal stabiliser (a rule whereby in a downturn the state spends more and in an upswing it reserves), so that the brake does not become procyclical in a recession. The framework is justified by the Reinhart–Rogoff pattern recognition (see 6.4.2): the rule protects precisely against the “this time is different” illusion.

3.3 Data-driven budget and revenue reform (built out by 2028)

The third pillar is transparency and the revenue side. The G1 data-driven budget publishes every item in machine-readable form, with a target indicator and a performance metric, tied to a real-time A1 public-money dashboard — so that the path of every forint arriving from EU funds and from the domestic budget can be followed. On the revenue side MIAK proposes not another mass tax, but the G3 tax-system simplification and the G8 progressive capital-income taxation, which burdens the topmost income band, not wage-earners.

These three proposals are held together by a single principle: the deficit trajectory can be corrected not by austerity on the weakest, but by the systematic improvement of the efficiency of expenditure and the fairness of taxation — this is exactly the answer to Kornai’s soft-budget-constraint diagnosis, namely that expenditure discipline should be embedded in rules, not in political promises.

Part IV — Expected impacts and risks

Dimension Expected impact Risk
Economy Falling deficit alongside improving credibility and a lower risk premium; strengthening forint The expenditure review is slow, the savings in the short run are smaller than hoped
Society By avoiding austerity, social security is preserved The “no austerity” promise may come under political pressure if the deficit remains stubbornly high
Public administration A more transparent, performance-linked budget The zero-based review requires significant administrative capacity

The main consideration is timing: the expenditure review and the debt brake build credibility, but their result appears with a delay. If the deficit demands correction faster than the review generates room for manoeuvre, a temporary tension may arise between the deficit target and the promise of austerity-freeness. The proposal works if the review is led by an independent body, and if the debt brake is counterbalanced by the G15 anticyclical stabiliser — otherwise in a recession the brake itself would deepen the downturn.

Part V — Measurability and summary

5.1 What is worth tracking? (suggested KPIs)

The success of the proposal is worth tracking on the basis of a few suggested performance indicators (KPIs, from which it is visible whether it has succeeded):

  • whether the general-government deficit, as a share of GDP, falls below 5 percent by 2027 and close to 3 percent by 2028 — without austerity;
  • the share of budget items that have undergone the zero-based review (target: 100 percent of the larger items within 3 years);
  • the share of budget items published in machine-readable form (the G1 target: 100 percent by 2028);
  • whether a realistic, data-driven euro-accession timetable appears along the Maastricht criteria (the deficit, debt and inflation conditions required for the euro area).

5.2 Summary

MIAK’s key message: the inherited record deficit is real, but the responsible answer is neither denial nor lawnmower-principle austerity, but a transparent, rule-based correction path. MIAK asks the decision-maker to institutionalise the deficit correction — with a zero-based expenditure review, a fixed debt framework and public tracking of public money — rather than treating it as a one-off political gesture. In this two MIAK foundational values move together: data-drivenness, because we tie spending decisions to measurable results, not to lobbying power; and transparency, because a publicly trackable budget is itself a disciplining force — the antidote to the soft budget constraint is precisely that the path of every forint is visible.

Part VI — Justifications and further sources

6.1 Press framing by spectrum

The economic press (Portfolio) highlighted the technical side: the record deficit and the receding trajectory of euro accession, and the spectacular strengthening of the forint against the dollar. The left-liberal and public-affairs band (Telex/G7, HVG) put the question of responsibility in the foreground — according to G7’s analysis this year’s deficit would be above 8 percent without EU money, and in HVG István Csillag framed the record deficit outright as the result of the previous government’s electoral money distribution. The pro-government-conservative band (Mandiner), by contrast, put the Prime Minister’s austerity-ruling-out statement at the centre, that is, it emphasised the absence of burdens affecting the population. The framings thus differ not in the fact (a high deficit), but in the attribution of causes and responsibility — this is precisely the point where MIAK’s ideology-free, data-driven reading adds something: the size of the deficit is a fact, its handling is a methodological question.

6.2 Facts and data

  • This year’s budget deficit (the Prime Minister’s statement, 2 July 2026): above 8 percent without EU funds, above 7 percent together with them.
  • Previously communicated deficit target: first 3.7, then 5 percent.
  • Hungarian GDP growth 2025 (preliminary): +2.1 percent (KSH).
  • Annual inflation, December 2025: 4.3 percent (KSH).
  • Hungary’s governance-quality indicators 2024 (World Bank Worldwide Governance Indicators, WGI): rule of law +0.35, control of corruption −0.17 — the latter also signals the transparency stake of deficit management.

6.3 Policy aspects

  • Economy (programme points) — the gravitational centre of the deficit trajectory, the expenditure review, the debt framework and the tax reform;
  • Transparency and anti-corruption policy (programme points) — the public-money dashboard and the public budget are the institutional guarantee of fiscal discipline.

6.4 Literature in detail

6.4.1 János Kornai: A hiány

Kornai, while analysing the socialist economy, described the mechanism of the soft budget constraint: if the economic actor can count on an external party always bailing out its loss, then its finances become detached from its own solvency, and expenditure discipline durably softens. The concept can also be transposed to modern public finances: where the deficit is “bailed out” year after year by new resources — be it one-off revenue or an external source — there structural discipline is not built in. In the handling of the Hungarian record deficit this means: the correction is lasting if expenditure discipline is fixed by a rule, and not by a case-by-case political decision.

📖 Source: Kornai János: A hiány

6.4.2 Reinhart and Rogoff: This Time Is Different

Reinhart and Rogoff showed, on the data of eight centuries and 66 countries, that debt and banking crises follow a recurring, recognisable pattern, yet decision-makers again and again fall into the belief that the earlier experience does not apply to them:

„Major default episodes are typically spaced some years (or decades) apart, creating an illusion that »this time is different« among policymakers and investors."

In the case of the Hungarian deficit trajectory this is a direct argument for the institutionalised debt-sustainability framework (G23): the rule and the early-warning system are meant to prevent precisely the illusion that the current favourable particulars (a strengthening forint, incoming EU funds) would durably dissolve the sustainability constraint.

📖 Source: Reinhart & Rogoff: This Time Is Different

6.4.3 Olivier Blanchard: Fiscal Policy under Low Interest Rates

Blanchard nuances the extreme claims of “every deficit is dangerous” and “every deficit is financeable”: according to him the sustainability of the deficit depends on the relationship between the interest rate and growth — if the economy’s growth rate durably exceeds the government-bond interest rate, the debt burden may ease of its own accord, but in the opposite case it quickly runs away. In the Hungarian situation this calls for caution: the correction cannot be postponed on the ground that the interest-rate environment is favourable, because the relationship may reverse. The Blanchard frame therefore supports the joint, mutually balancing application of the G15 anticyclical stabiliser and the G23 debt brake.

📖 Source: Olivier Blanchard: Fiscal Policy under Low Interest Rates (IMF)

6.5 International comparison

The rule-based fiscal framework is not a theoretical novelty: the German debt brake (Schuldenbremse) and the EU’s recalibrated economic-governance frameworks (rules tied to a medium-term expenditure path) institutionalise precisely the logic that G23 proposes — a pre-fixed limit, with automatic adjustment. The Scandinavian practice, at the same time, is also an example that discipline and high welfare spending do not exclude each other: the key is the quality of expenditure and a fair, broad base on the revenue side, not the mechanical suppression of the expenditure level.

Economy

  • G1 — Data-driven budget
  • G3 — Tax-system simplification and progressive reform
  • G8 — Progressive capital-income taxation
  • G15 — Anticyclical fiscal stabiliser
  • G20 — Economic-policy impact-assessment system (Drucker audit)
  • G21 — Systematic review of state expenditure
  • G23 — Government-debt sustainability framework

Transparency and anti-corruption policy

  • A1 — Public-money dashboard

6.7 Source register

Press sources (MIAK press monitor, 3 July 2026 — topic 3):

Knowledge-base references (literature):

  • 📖 Kornai János: A hiány
  • 📖 Reinhart & Rogoff: This Time Is Different
  • 📖 Olivier Blanchard: Fiscal Policy under Low Interest Rates (IMF)

Note: in the blog’s visible text only the author and the title appear for the books; the local file path is an internal matter of the generation process.

MIAK internal materials:

  • MIAK policy area: Economy (programme points; programme point ID: G23)
  • MIAK policy area: Transparency and anti-corruption policy (programme points; programme point ID: A1)
  • MIAK press monitor, 3 July 2026 — topic 3, score: 85/100

Additional public data sources:

  • KSH — general-government deficit and GDP time series; Eurostat — Maastricht criterion indicators; MNB — inflation report; World Bank WGI 2024 — governance-quality indicators.

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