The Hungarian government is set to unveil a comprehensive economic action plan following this week's cabinet meeting, with a focus on ensuring affordable housing, rapid wage convergence, and supporting SMEs, National Economy Minister Marton Nagy said on October 11.

The initiative will include over 20 sub-programmes, details of which will be released in the coming days, he added.

Prime Minister Viktor Orban in his regular Friday interview gave a preview of the programme that is designed to give a new impetus to the Hungarian economy, which is rebounding slower than expected from last year’s recession.

Beside the need to kickstart the economy, the government is faced with the suspension of EU funds and is also under pressure to bring its deficit below the Maastrich level. This target has been pushed back by one year to 2026, an election year, where over the past 20 years pre-election spending has traditionally resulted in bigger budget overshoots. The government poured several billions of euros into the economy before the 2022 election, which fuelled record inflation a year later, forcing high interest rates, which was a major contributor to the 0.9% GDP contraction in 2023.

Given Hungary’s strained fiscal position, a repeat of the 2022 election spending spree is unlikely. The new measures are designed to bolster support for the ruling party, which faces a tight election contest with the emergence of the Tisza party, which is polling neck-and-neck with the governing populist Fidesz party.

One of the pillars of the new economic programme would be wage convergence. Marton Nagy in a Friday presentation said the government supported an agreement between employers and unions that would raise the minimum wage to 50% of the average wage by 2027. That would require the minimum wage to rise from HUF266,800/month at present to HUF374,800 by January 1, 2027, and to HUF419,800 a year later, he added. At the same time, the average wage could rise from HUF651,150/month at present to HUF970,000 by 2028

The wage convergence could be supported by the launch of a credit scheme for young blue-collar workers, doubled family tax preferences and low inflation, Nagy said.

Another element of the programme would be to stimulate the housing market. Whilst the rate of homeownership in Hungary is one of the highest in the EU, with around 90%, there is a housing crisis as prices tripled over the last decade.

The lack of affordable housing, especially in major cities, is also hindering workforce mobility.

So far, the government has proposed allowing tax-free withdrawals from pension savings for home purchases. According to the draft proposal, this one-time opportunity would be available for one year from January 2025. Government and industry estimates suggest that this could mobilise HUF300bn for home purchases.

With demand for housing loans rising, and a lack of new development, there is a risk that further stimulus on the demand side will push up home prices further. Real estate broker Duna House estimates that prices could go up by 10-15%.

SME development will also be a key focus, including access to equity financing and preferential credit. Credit penetration of small businesses is well below the EU and regional average at 13-17%. The lack of innovation, high energy usage, and poor energy efficiency are making Hungarian businesses less competitive.

In his Friday interview, Orban stated that the planned steps could boost Hungary's economic growth to 3-6%, up from the current 1-2%, aided by a "policy of economic neutrality", a new buzzword from the prime minister. This concept is based on the assumption that Hungary could lose out if new economic blocs form on the global stage.