Hungary’s budget deficit came in at 2.8 percent of gross domestic product excluding one-off items last year, below the government’s target of 2.94 percent, Economy Minister Gyorgy Matolcsy told parliament’s budget and audit committee on Thursday.
Matolcsy said the public finances showed a surplus of over 3 percent based on EU accounting rules (ESA) last year, as a result of extra revenue generated by the transfer of private pension fund assets.
He said the introduction of a flat-rate personal income tax in 2011 have clearly shown positive effects on budget revenues, employment, whitening the economy and perhaps even on the demographic situation. Revenues from personal income tax rose by 1 percent last year, Matolcsy said, adding that the number of employed grew by 42,000, despite slow economic growth of just 1.3-1.4 percent, instead of the 3 percent expected.
Matolcsy told the committee that Hungary’s budget was “well-managed, stable and secure”.
He said reforms were under way in the country and 83 percent of the 550 billion forints (EUR 1.9bn) worth of adjustments planned in the economic Szell Kalman Plan were already implemented. These will guarantee that the 2.5 percent deficit goal is met, he said.
Matolcsy said this year’s budget has 100 billion forints laid aside in general reserves as well as 320 billion forints in further reserves that may be used after September 30.
He said the primary risk for Hungary was the euro-zone debt crisis, whose impacts were unforeseeable. He added that although these risks influenced growth and inflation expectations, the government has no plans to modify targets.
Socialist MP Imre Szekeres said that the central budget had been deprived of significant revenues because of the flat tax and suggested re-introduction of the multi-bracket system. He argued that abandoning the flat tax and incresing the corporate tax of medium-size and large companies from 10 percent to 18 would make it possible for the government to reduce the value-added tax to its earlier level at 25 percent and eliminate a three-percent social tax.
Gabor Vago, deputy of the small opposition LMP, voiced doubt about a well-managed budget and said that last year “nearly every week saw a budget adjustment or tax hike”. Vago referred to figures from the National Economy Ministry, and insisted that the flat tax had caused losses of 400 million forints (EUR 1.3m) to the central budget.
Chairman of economic research company GKI, Andras Vertes, told a forum on Thursday that it would require further measures by the government and “a lot of budgetary muscle” to keep Hungary’s budget deficit below 3 percent of GDP. Exceeding the target would mean a continuation of the country’s excessive deficit procedure and ultimately, the suspension of commitments from the EU’s cohesion fund, which the government can not afford, Vertes said. He said as a result of the government’s expected fiscal measures, GKI sees Hungary’s GDP contracting in 2012.
On Tuesday, European Union finance ministers (Ecofin) decided to endorse the commission’s view that Hungary had failed to make sufficient progress in narrowing its budget deficit as part of an excessive deficit procedure under way. The decision allows the Commission to move to the next stage of Hungary’s excessive deficit procedure.