Hungary does not need more budget cuts: PM Orban

BUDAPEST: Hungary will not need to make additional budget cuts despite an EU projection that the country will run an above-target deficit this year, Prime Minister Viktor Orban said on Monday.

Orban also said, without naming his candidate, that a new central bank governor would be presented to parliament on Friday, to replace outgoing Governor Andras Simor whose mandate expires after six years.

Local website nol.hu, citing government sources, and in line with market expectations, said that Economy Minister Gyorgy Matolcsy, the architect of the government's unconventional economic policies, was Orban's nominee for the bank post.

Citing sources close to the prime minister, the website said Mihaly Varga, who handled Hungary's contacts with the IMF, was the likely replacement for Matolcsy as Economy Minister.

Orban told HirTV that he was not planning a government reshuffle but declined to make comments when asked about Matolcsy's and Varga's chances to become central bank chief.

"This will be found out in time, this moment has not yet arrived," Orban said.

Investors are concerned that the leadership change could bring in risky monetary policy measures to boost the economy, and this has weighed on the value of the forint currency.

Orban, who faces parliamentary elections in the first half of 2014, said there was a good chance for "palpable" economic growth this year after an economic contraction of 1.7 percent last year. He said this could give the government more budgetary leeway.

The European Commission has forecast Hungary's deficit at 3.4 percent of economic output, above the bloc's 3 percent ceiling, and expects its economy to stagnate. But Orban said it was too early to make such predictions.

"With this budget, Hungary will perform better than before, therefore it's not worth changing it," he told HirTV.

"If there was a need to change it we will do so, but I don't expect that.

"If we need to tweak it for some reason it will not be because of negative news I think, but rather positive: if the economy performs better in the first half of the year as I hope ... then in the second half instead of austerity the budget could be rather changed towards boosting the economy," he added.

Orban, whose ruling centre-right Fidesz party is still the strongest political force in indebted Hungary, despite waning support, said there was a good chance for gradual wage hikes to be introduced for teachers in the second half of the year.

He also said there could be room for a plan to preserve and create jobs in the economy.

The prime minister said child-linked tax allowances could also be expanded.

Orban's government used unconventional policies, including Europe's highest bank tax, windfall taxes on selected business sectors, and a nationalization of private pension funds, to rein in the budget deficit in the past three years.

He told HirTV that his government had never listened to Brussels's calls for austerity and if there was need for more revenues, it taxed banks or energy firms.

"I don't want to tax the people. Brussels would like to see, and also the Hungarian opposition...that there should be austerity, some kind of pain to the people," Orban said.

Orban's government has implemented income tax cuts but also raised the value added tax to 27 percent and imposed a tax on all financial transactions.