The Fidesz centre-right government’s special tax on financial institutions will stifle growth, but the economic plan which it is a part of will enable the country to attain the budget deficit target, Gyorgy Kopits, head of the independent Budget Council, has said.
In an interview with Magyar Narancs weekly, to be published on Thursday, Kopits said that it was imperative that the government implement structural reforms in order to ensure budgetary stability over the medium term.
He said it was immaterial whether the International Monetary Fund or European Union was lenient with Hungary; at issue is the country’s credibility in the market.
Kopits said that the Budget Council reckons that the deficit will be 4.2 percent of gross domestic product this year as against the official target of 3.8 percent, but that the latter figure would be attainable if the government’s 29-point action plan is fully implemented.
He said that risks in the budget amounting to a full percentage point were associated with local governments and debt-laden state-owned companies.
“We find it reassuring that the [the Fidesz-appointed budget fact-finding]committee … has pointed to these risks, even if they haven’t officially published them in report,” he said.
Kopits said that the deficit next year cannot exceed 3 percent of GDP and the cut in spending will depend on the size of revenues. In March, the Budget Council estimated that spending cuts – ie, to education, health and public administration – next year will have to be in the order of 200 billion forints in real terms.
On the subject of the tax on financial institutions, he said the banks had serious sway over the market and they would find a way of passing on the costs of the special tax to customers while at the same time reducing credit and making it more difficult to obtain loans. Kopits added that the measure was therefore regressive.
He said it was unlikely that any individual bank would pack up it bags and leave Hungary because of the tax, but it was possible that institutions which have activities not only in Hungary will rebalance the weight of their activities to other countries.
Neither the IMF nor the EU want another Greece on their hands, he said. If Hungary asks for help then they will both want to make sure that the country performs better and stands on its own feet; at least, this is what the German Chancellor recently indicated to Orban, he added.
“With behaviour and statements which cause uncertainty we will only end up tying ourselves in knots,” he said. “We should manage things is such a way that we don’t have to end up turning to the IMF but instead persuade investors through our economic policy and communication that they can happily finance Hungary,” he said.