The European Commission indicated in its October letter that it can accept only two-thirds of the previously announced fiscal adjustment measures and thus forecasts the budget deficit next year to come within the range of 3.7 and 3.9 percent of gross domestic product.

Although the Government does not agree with these figures, failure to keep the deficit below 3% would imply moving to the next stage of the Excessive Deficit Procedure (EDP) and the freezing of Hungarian cohesion funds. The Hungarian Government is, however, determined that the EDP against Hungary be closed at the earliest opportunity and has therefore decided to propose further steps with a view to complying with the expectations of the European Union.

Recently announced measures include doubling the financial transactions tax, adding revenue of 130 billion forints as well as keeping the bank levy unchanged, resulting in additional revenue of 72 billion forints. Furthermore, local business tax rules will be changed, generating 35 billion forints and the government will introduce a utilities tax that will generate 30 billion forints more in budget revenue.

International financial analysts (Raiffeisen Bank, Erste Group Bank AG) have generally welcomed the declaration, stressing that the envisaged measures would be more than enough to ensure the shortfall stays below 3 per cent of economic output, thus ensuring the closure of the Excessive Deficit Procedure against Hungary. According to some estimates, next year’s deficit might as well drop to 2% of GDP.
Earlier this month, the government already unveiled a fiscal adjustment package worth 397 billion forints for next year in a bid to meet deficit targets, which had met with a truly positive response in the markets, with the Hungarian currency jumping by around 1 percent. Furthermore, the move to scrap the transactions tax on the central bank was seen by analysts as the removal of a major obstacle to the successful outcome of talks with international lenders.

The Economy Minister said the Government trusted that the International Monetary Fund and the European Union would provide a positive assessment with regard to Hungary’s efforts to carry out a sustained fiscal consolidation. The European Commission is scheduled to publish its country-specific autumn budget forecast on November 7.

Source: Prime Minister’s Office – kormany.hu