Hungary PM Magyar targets new economic model, gives key ministers veto over legislation

• Summary

• Magyrar eyes shift away from economy built on cheap labour

• Finance minister pledges to rebuild policy credibility

• To present credible four-year deficit cut plan

• Aiming to meet euro entry criteria by 2030

• Ministers’ veto may act as brake on Magyar’s powers

BUDAPEST, May 12 (Reuters) - Hungary’s new prime minister, Peter Magyar, on Tuesday ‌gave veto powers over legislation to four ministers including Finance Minister Andras Karman, who has inherited what Magyar described as a “dramatic legacy” from former right-wing leader Viktor Orban.

Magyar ousted Orban after 16 years in an April 12 election, inheriting a surging budget deficit and an economy ​which has barely clambered out of stagnation and is facing new headwinds from the Middle East conflict.

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Earlier ​on Tuesday, Karman pledged to rebuild policy predictability marred by years of ad hoc changes and ⁠to lay down a four-year path of deficit and debt reduction putting Hungary on track to meet the criteria ​for euro adoption by 2030.

“He will inherit a difficult, possibly dramatic legacy, the true depths of which will only reveal ​themselves in the coming days,” Magyar said as his government took power.

Magyar, who has said Hungary’s budget deficit could widen to 6.8% of output this year, far more than earlier plans, said veto powers during the government decision-making process would also be granted to the health, ​justice and education ministers.

The move appeared to be intended as a check on Magyar’s own power by allowing the four ​to block legislation before it goes to parliament, where their Tisza party holds over two-thirds of the seats.

“One of the most important ‌tasks of ⁠the upcoming period will be to restore the moral and institutional framework of the rule of law,” he said.

POLICY SHIFT

Magyar’s government has pledged to put Hungary on a pro-European course to secure the release of billions of European Union funds suspended due to Orban’s reforms seen as harming democracy.

Magyar said his government would launch a radical shift in policy away ​from an economic model built ​on cheap labour, manufacturing with ⁠low added value and corruption, and instead towards one geared instead to productivity, innovation and investment in technology.

“Hungarian economic policy needs not a simple adjustment, but an entirely new direction,” ​his finance minister told a parliamentary confirmation hearing.

Karman said the new government will need ​a month and ⁠a half to have full clarity on the 2026 budget, which originally set a shortfall of 5% of output, some 70% of which was racked up by April amid heavy pre-election spending under Orban.

He said an overhauled 2026 budget would form the ⁠basis of ​next year’s budget and a four-year plan to cut Hungary’s deficit towards ​the EU’s 3% limit.

Karman said the cabinet would make the business environment more predictable, end retroactive legislation, restore fair competition and eliminate overpriced public procurement, ​which he said boosted the deficit and distorted the economy.

Reporting by Gergely Szakacs; Editing by Keith Weir and Hugh Lawson

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Gergely Szakacs

Thomson Reuters

Gergely reports on central European economics, central banking and government policy, with content usually appearing on the Macro Matters, Markets, Business and World sections of the website. He has nearly two decades’ worth of experience in financial journalism at Reuters and holds advanced degrees in English and Communication.

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