Government spending in Hungary is 1 percentage point higher as a share of GDP than that of the German state. Narrowly, by 1–2 percentage points, we also surpass the V4 and other countries in the region; compared to the Balkans, however, the difference is striking: the Hungarian state is a third larger than the Romanian, Bulgarian, Moldovan, or North Macedonian states. Only the deeply indebted welfare states of Southern Europe are larger than Hungary’s.
The large Hungarian state is a consistent trend: since 1995, when the IMF began collecting such data, Hungary has always been the record-holder within the V4, although we have managed to slim down the state by around 6 percentage points since then. The large size of the Hungarian state is partly a matter of necessity: government spending includes debt service, and unfortunately, Hungary has been the regional debt record-holder since the regime change. The difference between us and the V4 primarily stems from our higher interest expenditures.
At the same time, the large state is also an expression of Hungarian étatism: people tend to favor a caring state that regulates the market. Romania’s breakneck-speed growth, which has also brought about extreme inequality, is in part due to its much smaller state. While the free market may have more room to operate there, it is no coincidence that Hungary’s larger state has, over the past decades, managed to realize more inclusive, equalizing growth, accompanied by far greater poverty reduction.
The world has changed tremendously over the past hundred years. At the beginning of the 20th century, states were weak. Most modern forms of taxation were either unknown or held little significance. The British introduced personal income tax in 1799, but only as a temporary measure. The modern corporate profit tax began to spread in the early 20th century. The first value-added tax (VAT)–type levy was introduced by the French in 1954.
A hundred years ago, Hungary’s tax revenues amounted to around 2 percent of the country’s economic output at the time. There was hardly any state tax collection, and, naturally, no state services such as pensions, social insurance, or public employment either. Since then, the role of the state has expanded steeply, especially during the socialist era. However, since then, the role of the state has clearly declined.
What the map does not show, but is just as important in many respects, is the gap between state revenues and expenditures, that is, the size of the budget deficit.
In modern Hungarian history, the largest deficit occurred in 2006, amounting to 9.3 percent of GDP. Last year’s figure of 5.1 percent represents a manageable deficit, especially given its downward trajectory.
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