Hungary’ Socialist government, struggling to pinpoint resources to fund tax cuts while reluctant to pare back the country’s generous social spending, has brushed off an alternative economic plan by a financial consultancy that proposed revamping social benefits in order to help kickstart economic growth.
Oriens, an M&A financial consultancy active in Central and Eastern Europe, last Thursday unveiled its alternative economic program, entitled Kilábalás (“Recovery”), which has since whipped up widespread interest both among local economists and in the media. The report said Hungary must cut back social spending, such as pension and maternity benefits, and public sector wages in order to boost employment and free up state revenue for tax cuts.
The consultancy said its plan would allow the government to save about Ft 1,000 billion, or 3.5% of GDP, in its first year of implementation, nearly three-quarters of which would come from spending cuts and 30% from raising VAT and excise taxes.
But for all intents and purposes the government dismissed the idea at a two-day consultancy meeting on Tuesday, where Socialist Party leaders agreed that the funds for tax cuts should come from within the tax system only rather than through whittling down budget spending.
The trimming of taxes or payroll costs has to implemented by overhauling the tax system, while social expenses or pensions should be left intact, and the employment rate could be increased by expanding public work and encouraging employers by targeted subsidies to hire people living in disadvantaged areas, government spokesman Balázs Daróczi said at the meeting.
Prime Minister Ferenc Gyurcsány, speaking Wednesday at a two-day government session in Dobogókő, near Budapest, said he wanted to press ahead with changes in several areas at the same time, including taxation, social aids, adult and skills training. He stressed that the government wanted to stimulate the economy while maintaining its “balance policy”.
Gyurcsány would fund tax cuts by continuing the fight against the shadow economy, keeping a tight grip on budget spending, reviewing tax relief and benefits and shifting priorities in taxation.
He criticized municipalities that tie unemployment benefits to community service, saying that it is not right that work is imposed as a punishment, and that such local governments are defying national regulations.