Hungary announces new taxes to cut deficit

Hungary announced plans for higher taxes on Wednesday to rein in its budget deficit and avert the loss of European Union development funds after Brussels warned the deficit would overshoot targets next year. The European Union (EU) expects the budget deficit to come in at 3.7-3.9 per cent of economic output next year, above the government’s target of 2.7 per cent, without additional measures, Hungarian Economy Minister Gyorgy Matolcsy told a news conference on Wednesday. Matolcsy said that the government disagreed with this assessment, adding that Budapest decided on new fiscal measures worth 367 billion forints ($1.72 billion) for next year to ensure the deficit is below the EU’s 3 per cent ceiling. The announcement highlights the persistent rift between Prime Minister Viktor Orban’s government and international lenders, who have proposed easing back on some of the unorthodox measures it has imposed.Matolcsy said that contrary to earlier plans, Hungary will not halve a windfall tax on banks next year and will raise a new tax on financial transactions to 0.2 per cent from 0.1 per cent, which sent the shares of OTP 5 per cent lower on the Budapest Stock Exchange. He also said the government would levy a new tax on public utilities which will mainly apply to foreign firms. The new measures come on top of a previous round of budget cuts worth 397 billion forints announced earlier this month. “We are making adjustment measures worth a total of 764 billion forints, this second round is not something we like, we did not want to introduce most of these ... new steps next year,” Matolcsy said on Wednesday. “We think the first set of measures would have been enough, but if our partners think differently and applying a double standard would (have) deprived Hungary of cohesion funds, that would have been a big problem,” he added. “We hope very much that the European Commission will change its stance, these are very strong figures that we announced,” Matolcsy said, repeatedly criticising the EU’s assessment of Hungary’s previously announced measures. Following a tumble in Hungarian assets late last year, Orban stabilised markets by pledging to seek aid from the European Union and the International Monetary Fund (IMF). But he has since played a cat-and-mouse game by repeatedly assuring the market that a deal was in reach while also rejecting any of the strict conditionalities that accompany such deals and introducing new policies that clash with traditional economic orthodoxy. Hungarian government bond yields rose 20-25 basis points on the new announcement in a thin market, giving back some of the gains posted in past weeks on hopes that the country was edging closer to an agreement with the IMF about a financing backstop. The European Commission has asked Hungary to find an additional 150-200 billion Hungarian forints worth of savings in the 2013 budget to keep its deficit under control, news portal origo.hu cited unnamed government sources as saying. A government spokeswoman could not comment immediately on the report. A spokesman for the European Commission in Hungary was not immediately available for comment. Hungarian Economy Minister Gyorgy Matolcsy, however, will hold a snap news conference at 0800 GMT on Wednesday, the government spokesman’s office said in a statement. It said Matolcsy would discuss government measures related to the European Union’s excessive deficit procedure against the central European country, under way since Hungary joined the 27-member bloc in 2004. Under the EU rules, Hungary must keep its fiscal shortfall below 3 per cent of economic output this year and next to avoid the loss of millions of euros worth of EU development funds that could deal a further blow to its shrinking economy. Early this month Matolcsy announced 397 billion forints ($1.86 billion) worth of spending cuts and tax hikes for 2013 to keep the deficit at 2.7 per cent of gross domestic product. The EU Commission had been due to formally assess Hungary’s latest savings measures on Nov.7. Origo.hu said the Commission believed the government could still overshoot its new deficit 2013 target, already raised from 2.2 per cent of GDP, and expects Budapest to identify and announce further steps to tackle its chronic shortfall. From gulftoday