The government needs to agree with the IMF and EU missions by the weekend. The scheduled consultations will continue, but Washington does not like it either that the 2011 budget plans still need some polishing.

Index.hu has learned from several sources that Hungary’s new government (that swept into power in April) has managed to anger the IMF right off the bat, at the very first official talks.

An IMF-EU mission arrived to Budapest last week for the scheduled quarterly review of the country’s economic performance with relation to a EUR 20 bn credit facility granted in the autumn of 2008 and to discuss future plans.

Index.hu said the international lender harbours hard feelings toward the cabinet for a number of reasons, but mainly because the Orbán-led government is not willing to negotiate about the essence of the measures planned for this year, including the tax package (to be voted on in Parliament next week) and the massive special surcharge to be levied on the financial sector.

The IMF has already warned Hungary against being inflexible at the talks. One of its top officials wrote in a letter a few weeks ago that they do not like to be left with no option but to accept what they are told without room for consultations. The cabinet, it seems, has shrugged off this warning. According to index.hu’s sources, the government told the IMF last week that the tax package would be put forward and approved as it had been originally conceived. It also does not wish to aim lower than HUF 200 bn with regard to the revenues it set to raise from the bank tax this year. As a result of this autocratic behaviour, the IMF mission has already expressed its disapproval.

One of index.hu’s sources claim the IMF asked the government to postpone the vote on the tax package to the autumn parliamentary session so as to leave some time for adjustments.

The IMF not only considers the bank tax too large a burden but is also critical of the fact that the cabinet wants to cut the corporate tax rate. If it wants to lower taxes, the government should focus on labour taxes instead, the IMF says.

What the IMF really wants Hungary to do is achieve the 3.8% of GDP budget deficit target this year - everything else is secondary, another source told index.hu.

Neither the IMF nor the Economy Ministry wished to comment, saying they would not do so until the talks have not been concluded.

The budget plans for 2011 are also unfinished but the parties have not yet reached that point in the talks yet. The new chief of the IMF mission to Hungary, however, indicated about a month ago that Hungarian authorities should focus on measures to meet the 2010 deficit goal and leave tackling the 2011 budget for later."

Source: Portfolio Online Financial Journal