The EC welcomed the government’s decision to lower the deficit target for 2015, but noted “important concerns regarding the substantiation of a number of revenue-increasing measures contained in the 2015 draft budget”. “The sustainability of the fiscal adjustment would benefit from the further reinforcement of fiscal governance,” it added.

The EC acknowledged that Hungary’s GDP growth rate had been one of the highest in the European Union in recent quarters, but it attributed the growth, in part, to increased absorption of EU funds at the end of the 2007-2013 funding period, and “short-term stimulus measures”, such as a central bank programme providing cheap credit to SMEs, cuts in households utility prices and the expansion of a fostered work programme.

The EC said “restoring normal operation” of the banking system was key to reviving growth in a sustainable manner. It pointed out the need to improve banks’ capital accumulation capacity and enhance the effort to clean up portfolios.

“In the light of the progressively increased tax and regulatory burden on the financial sector, the advocated policy adjustment should include a reduction in this burden to bring it more in line with the European average,” it said. The EC also stressed that a big state stake in the banking sector “has the potential to expose public finances to a contingent liability”.

The EC mission called for “a stable and more balanced corporate tax system” and criticised Hungary’s increased reliance on sector-specific taxes. It urged “more predictable and competitiveness-oriented policies”. The mission visited Hungary from November 25 to 28 to review recent economic and financial developments and policy initiatives.

Source www.hungarymatters.hu

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