Hungary has room to streamline public spending without hurting growth

Cutting some state operating and economic spending to the average of its regional peers could save Hungary more than four percent of GDP.

Hungary’s new government, elected in April, has inherited a challenging fiscal position. Under unchanged policies the budget deficit is projected to increase from 4.7 percent of GDP in 2025 to 6.2 percent in 2026.

This contrasts sharply with Hungary’s January 2025 medium-term fiscal-structural plan – a plan all European Union countries must draw up as part of the EU economic governance framework – which envisaged a gradual decline in the deficit to 2.5 percent by 2026. Net public-expenditure growth, the main operational indicator under EU fiscal rules, is also expected to significantly exceed the limits set under the EU excessive deficit procedure (EDP) to which Hungary is subject, and which requires Hungary to rein in its debts.

Although a small portion of this overshooting can be attributed to higher defence spending, which is allowed under EU fiscal rules, the overall fiscal path is clearly off track, raising concerns about Hungarian macroeconomic stability and risking a negative EDP compliance assessment.

Despite this, the electoral programme of the now-in-government Tisza party includes pledges to maintain several costly measures introduced by the previous administration, including personal tax exemptions, a ‘14th-month’ pension and various energy and fuel subsidies. Tisza has also promised increases for those on low pensions, reduced income tax for low earners and substantial healthcare and education spending increases. To finance these commitments, the government intends to rationalise public expenditure, reduce inefficiencies, eliminate overpriced public procurement practices and introduce a wealth tax on forint billionaires.

This analysis compares Hungary’s public spending with other EU countries to identify where expenditure is disproportionately high and where savings could be achieved with limited economic harm. While some of these savings could help finance elements of Tisza’s electoral programme, such as higher spending on healthcare and social policies, we do not provide an analysis of where to spend more. Nor do we address potential tax reforms, which could also play an important role in putting Hungary’s fiscal house in order.

Public spending across the European Union

EU countries share a common institutional framework under EU law and jointly agreed policy priorities that shape national budgets and are thus useful public spending comparators. For the comparison, we define four country groups, with eastern EU countries the most relevant for Hungary, given their shared history, geographical proximity and similar legal and economic structures:

• Eastern EU: Bulgaria, Czechia, Estonia, Croatia, Poland, Latvia, Lithuania, Romania, Slovakia and Slovenia;
• Southern EU: Greece, Italy, Portugal and Spain;
• Western EU: Austria, Belgium, France, the Netherlands and Germany;
• Northern EU: Denmark, Finland and Sweden.

Cyprus, Ireland, Luxembourg and Malta are excluded because of their specific economic characteristics.

The analysis is based on 2024 data, the most recent year available for all countries. This has advantages and drawbacks. Data from 2024 is less affected by measures taken in the run-up to the election and better captures the underlying budget structure. Temporary spending in 2025-26, including higher communication costs, a one-off energy subsidy after the cold January of 2026 and reduced fuel prices, is relatively easy to reverse. However, some pre-election measures introduced permanent transfers, including the personal income tax cuts and 14-month pensions, which are likely to increase parts of the 2026 budget relative to 2024.

Table 1: Main categories of government expenditure (% of GDP), 2024
	Hungary	Eastern EU	South EU	Western EU	Northern EU
Total expenditure	47.1	44.6	46.6	52.1	51.8
General public services	10	4.7	6.9	6	6.1
Defence	2	2	1.3	1.4	1.8
Public order and public safety	1.8	2.2	1.8	1.7	1.3
Economic affairs	7.7	5.6	5	5.8	4.3
Environmental protection	0.4	0.8	0.9	1	0.4
Housing and community facilities	1	0.9	0.6	0.7	0.5
Healthcare	4.7	6.7	6.4	8.3	7.8
Leisure, culture and religion	2.5	1.3	1	1.3	1.5
Education	4.9	5.2	4.1	5.3	6.4
Social protection	12.3	15.1	18.7	20.8	21.7

^{Source: Bruegel based on Eurostat ‘General government expenditure by function (COFOG)’ dataset. Note: within each group, a simple arithmetic average is used, reflecting the spending structure of a ‘typical’ country, rather than a weighted average that would give greater influence to larger economies.}

Hungary spends an exceptionally high 10 percent of GDP on general public services, compared to 4.7 percent to 6.9 percent in other EU countries (Table 1). Expenditure on economic affairs (see Table 3 for a breakdown of this category) is also significantly higher: 7.7 percent of GDP compared to 4.3 percent to 5.8 percent in other country groups. Hungarian economic-related expenditure was even higher before 2024: 8.5 percent to 10.5 percent of GDP between 2019-2023. The Hungarian state also spends above average on leisure, culture and religion.

In contrast, Hungarian social protection spending is significantly lower than other countries: 12.3 percent of GDP versus between 15.1 percent and 21.7 percent. Spending on healthcare is similarly low (4.7 percent), compared to 6.4 percent to 7.8 percent in the other country groups. In the remaining five main spending areas, Hungarian data is broadly in line with EU averages.

Palócz (2024) showed that some of these differences reflect policy choices under former prime minister Viktor Orbán. Social spending declined from close to the EU average, 17.2 percent of GDP in 2010, to 13.1 percent in 2022; during the same period, spending on economic affairs rose markedly from 5.8 percent to 10.5 percent of GDP. By contrast, Hungary’s relatively high spending on (non-interest) general public services was already evident in 2010, when Orbán’s second period in office began.

Tables 2 and 3 show the detailed composition of spending on general public services and economic affairs, the categories with the most marked excess expenditure.

Table 2: Subgroups of general public service expenditure (% of GDP), 2024
	Hungary	Eastern EU	South EU	Western EU	Northern EU
General public services	9.99	4.66	6.91	5.99	6.13
Executive and legislative bodies, financial and budgetary affairs, foreign affairs	3.24	2.36	1.93	1.93	1.66
Foreign economic aid	0.01	0.05	0.06	0.29	0.56
General services	1.24	0.38	1.22	1.34	1.29
Basic research	0.26	0.35	0.36	0.78	1.21
Government debt interest and transactions	4.97	1.38	3.07	1.58	1.07
Other general public services	0.28	0.13	0.26	0.06	0.34

^{Source/note: see Table 1.}

In 2024, Hungary’s public debt interest payments amounted to nearly 5 percent of GDP, more than any other EU member. This is striking given that Hungary’s public debt ratio, at 73 percent of GDP in 2024, remained well below Greece (154 percent) and Italy (135 percent). Elevated interest rates, driven by high inflation and a sizeable risk premium, pushed Hungary’s interest burden, relative to GDP, to a record high.

Hungarian spending on the operation of government – the executive, legislature, financial/tax management and foreign affairs, including diplomatic and consular missions – was 3.24 percent of GDP. This is significantly higher than the regional average (2.36 percent) and even lower values elsewhere in the EU. This spending is concentrated at the central government level (2.6 percent of GDP in Hungary vs 1.7 percent in eastern EU members), while at the local level, Hungary spends slightly less (0.7 percent vs 0.8 percent).

Hungary also stands out in the region for general services – personnel management, economic and social planning, the operation of statistical systems, procurement, records and archives, maintenance of state buildings and vehicles and IT systems and operations. On this, Hungarian spending exceeds the regional average by almost one percentage point, though it is broadly in line with other EU members.

In contrast, Hungary spends less on supporting basic research and foreign aid compared to EU country groups.

Table 3: Subgroups of economic expenditure (as a percentage of GDP), 2024
	Hungary	Eastern EU	South EU	Western EU	Northern EU
Economic affairs	7.7	5.6	4.94	5.81	4.26
General economic, commercial and labour affairs	1.19	0.54	0.87	1.48	0.73
Agriculture, forestry, fishing and hunting	0.39	0.5	0.34	0.21	0.33
Fuel and energy	1.54	0.73	0.6	0.47	0.14
Mining, manufacturing and construction	0.02	0.19	0.35	0.06	0.05
Transportation	3.77	3.16	2.16	2.64	2.7
Communication	0.06	0.04	0.1	0.05	0.01
Other industries	0.57	0.21	0.15	0.25	0.03
R&D Economic Affairs	0.07	0.15	0.21	0.56	0.26
Economic matters not elsewhere classified	0.08	0.08	0.17	0.08	0.01

^{Source/note: See Table 1.}

Within economic expenditure, fuel and energy expenditure in Hungary is about twice the regional average as a proportion of GDP, and even more than in other members. High Hungarian spending is presumably related to the utility bills reductions, but without more detailed data this cannot be examined precisely.

Hungary also spends more on transport and support for ‘other industries’, including trade, hospitality and multi-purpose developments, than the other country groups. In the areas of general economic, trade and labour affairs, Hungarian spending also significantly exceeds the average of the regional and southern and northern European countries, while falling short of the spending levels of western European countries.

Tax expenditures

Beyond cash expenditures, the structure of the revenue side and so-called tax expenditures – exemptions, reduced rates, deductions, credits and deferrals – are equally important, as they represent foregone budget revenues. Only estimates of these revenue losses are available, such as those provided by Redonda et al (2025).

Although Hungarian data suffers from quality limitations, estimates suggest that tax expenditures, while sizeable, are not exceptional for the region. In 2024, foregone revenues amounted to 2.4 percent of GDP. Of this, 0.7 percent benefited businesses and 1.2 percent households, with the remaining 0.5 percent shared by both. The shortfall was higher in Slovakia (2.8 percent) and Italy (4.8 percent), while in Bulgaria and Estonia it was lower at 1.2 percent to 1.4 percent of GDP in 2023.

Scope for growth-friendly savings: interest payments

Hungarian government bond yields began drop ahead of the election, reflecting market expectations of a Tisza victory. Since the election, Hungarian yields have fallen further, while yields in other countries have remained broadly unchanged (Figure 1). This decline likely reflects a reduction in Hungary’s risk premium, possibly driven by improved investor sentiment and expectations of euro accession – the new government has said it aims to meet the entry criteria by 2030.

However, the impact of lower interest rates will only be reflected in spending gradually, as previously issued high-yield bonds are replaced by lower-yield bonds only after they mature. The dynamics of the public debt-to-GDP ratio will also shape future interest expenditures. The European Commission’s May 2026 forecast (published several weeks after the elections and likely incorporating the decline in yields) projects only a minimal reduction in the average interest rate on Hungarian government debt up to 2027 (Figure 2). 

Scope for growth-friendly savings: state operating costs and economic affairs spending

In addition to interest expenses, a reduction in the Hungarian expenditure levels to the regional average in seven of the expenditure categories in Tables 2 and 3 would result in savings equivalent to 4.3 percent of GDP. These categories are: executive and legislative bodies, financial and budgetary affairs, foreign affairs; general services; other general public services; general economic, trade and labour affairs; fuel and energy; transport; and other industries. It is important to emphasise that these savings would not cut social security benefits. 

Reductions in state operating costs are unlikely to harm the economy, whereas cuts in economic affairs spending in principle could. However, if part of this spending reflects corruption, its reduction through improved governance need not have adverse economic effects.

Research on EU public procurement identifies single-bidder contracts as a key indicator of weak competition and elevated corruption risk, with Hungary consistently emerging as an outlier (Fazekas et al, 2016; Fazekas and Kocsis, 2020; CRCB, 2026). A corruption risk index based on procurement data found that firms with higher risk scores exhibit higher profitability, larger gaps between contract values and initial estimates, and stronger links to political elites or offshore jurisdictions (Fazekas et al, 2016). The European Commission’s Single Market Scoreboard⁶ likewise regularly ranks Hungary among the weakest performers in terms of procurement competition and the prevalence of single-bidder contracts.

Recommendations

One of the priority tasks for Hungary’s new government’s will be to carry out a comprehensive review of the expenditure structure and pursue its rationalisation. The exceptionally high Hungarian (non-interest) general public services and economic expenditure, compared to EU peers, suggests scope for significant savings without hurting growth. Lessons from past spending reviews (summarised by Bova et al, 2020, and Hoogeland et al, 2024), should be taken into account. The Hungarian government can also draw European Commission technical assistance.

An obvious step, though probably not sufficient in itself, is to curb avoidable expenditure, such as reducing prestige investments and excessive communication costs. Significant money can be saved by curbing corruption and creating a real competitive situation in public procurement, but it is uncertain to what extent and over what period this can be achieved. Rationalisation will most likely also require the closure or reorganisation of certain state institutions and ministerial departments, which will pose a serious challenge because of the likely need for public employment to be reduced. A priority for cost savings should also be the means-testing of individual subsidies, while subsidies proportional to consumption must be changed to lump-sum subsidies. This could result in significant savings and also encourage more efficient energy use.