Hungary's parliament approved Prime Minister Viktor Orban’s 2026 election-year budget on Tuesday, featuring significant tax cuts for families, a core voter base for his right-wing Fidesz party, despite ongoing concerns about the country’s sluggish economic outlook.
Hungary's economy showed no growth in the first quarter compared to the previous year, while inflation remained the highest in the European Union, posing challenges for Orban’s bid for re-election in 2026.
Hungary's economic recovery faces additional headwinds from the looming threat of US tariffs on Europe and a continued standoff with Brussels over Prime Minister Orban's judicial and other reforms, which has resulted in the suspension of EU funds, further straining the country’s economy, Reuters reports.
Despite these challenges, Orban’s government is moving forward with major tax cuts for families in 2025 and 2026, aiming to bolster support in the face of growing competition from a centre-right opposition party that some polls now show leading the nationalist Fidesz ahead of the election.
Hungary’s Fiscal Council approved the 2026 budget, citing projected progress in reducing the country’s debt, currently the highest in the EU outside the eurozone. The government expects the debt-to-GDP ratio to decline from 73.1% at the end of 2025 to 72.3% by the end of 2026.
The budget also aims for a deficit of 3.7% of GDP in 2026, down from an estimated 4.1% in 2025. However, the European Commission projects a wider shortfall, forecasting a 4.6% deficit this year and 4.7% in 2026.
Although Orban’s government has increased reserve levels to better handle potential contingencies, the Fiscal Council remains concerned about sluggish economic growth and uncertainties surrounding the release of EU funds, issues that were not addressed in the budget.
“Weaker-than-expected first-quarter 2025 GDP data and the trade tensions in the world economy pose downside risks to growth,” the watchdog stated.
“These represent substantial growth and fiscal risks for 2025, forming the basis of the (2026) budget, with (the risks) carrying over into 2026.”
Hungary’s debt edged higher last year after the budget deficit exceeded expectations, reaching 4.9% of GDP. At the same time, the country posted one of the weakest economic growth rates in Europe.
A sharp rise in the deficit during the first four months of the year has led Orban’s government to increase its 2025 deficit target and plan an additional $4 billion in borrowing from international markets, pushing Hungary’s foreign currency debt above the 30% threshold.
The government is forecasting a rebound in economic growth to 4.1% in 2026, up from a revised 2.5% projection for 2025. However, this 2025 target is now under review following weaker-than-expected data from the first quarter.
The OECD projects Hungary's economy will grow by only 0.9% in 2025 and 2.4% in 2026, both figures falling significantly short of the government's more optimistic forecasts.