S&P Global Ratings raised concerns over the Hungarian government’s recent announcement of tax cuts and increased welfare spending ahead of the 2026 elections, according to bne IntelliNews.
The company warned that the measures could significantly strain the country’s fiscal position and complicate efforts to reduce the budget deficit below 3%. The credit rating agency highlighted the potential impact on Hungary’s economic stability, including challenges in stabilising the forint and meeting inflation targets.
Tax cuts, welfare spending
Hungarian Prime Minister Viktor Orbán unveiled a series of bold measures over the weekend, including extending personal income tax (PIT) exemptions to mothers with at least two children and doubling family allowances for households raising two or more children. The PIT exemption, described by Orbán as the “biggest tax cut in Europe,” will be phased in starting in 2026, initially available to mothers under 40, with women over 60 becoming eligible from 2029.
The family allowance increase is expected to benefit 1 million families and 1.7 million children, while the PIT exemption will apply to 900,000 families. Government officials estimate that these measures will leave HUF 754 billion (approximately €2 billion) in the hands of families in 2025, with the figure rising in subsequent years as the programmes expand.
S&P estimates that the combined measures could cost the budget HUF 915 billion (around €2.4 billion) annually, equivalent to more than 1% of Hungary’s GDP. The agency warned that the pre-election spending spree could exacerbate Hungary’s fiscal challenges, particularly given weak external demand, reduced access to EU funds, and the depreciation of the forint.
Debt and growth projections
Hungary has already lost over €1 billion in frozen EU funds due to the EU’s N+2 budgetary rule, with only €9.4 billion in cohesion funds still recoverable. The amount was further reduced by €325 million following a European Court of Justice ruling on Hungary’s asylum policy failures, which imposed a €200 million lump-sum fine and a daily penalty of €1 million.
Additionally, the European Commission has deducted €293 million from Hungary’s 2021-2027 cohesion funds at a punitive interest rate of 11.5%.
The weaker forint has already increased the debt-to-GDP ratio by 1.4 percentage points in 2024 to 76.4%, exceeding the government’s target by 3.8 percentage points. S&P forecasts economic growth of 2.7% in 2025, above market consensus but below the government’s target of 4.1%.
Growth is expected to slow to 2.4% in 2027, significantly lower than the government’s estimate of 4.3%.
As Hungary prepares for the 2026 elections, the government’s fiscal measures will be closely watched by investors and international institutions, with potential implications for the country’s economic trajectory and creditworthiness.
