Hungary's Socialists will put the budget back on a credible path after April's elections and will not seek to match opposition tax cuts and spending hikes, Prime Minister Ferenc Gyurcsany told Reuters on Monday.
Gyurcsany said tax cut plans from the conservative opposition Fidesz, which it admits will cost 500 billion forints ($2.35 billion) in lost revenue in the first 12 months, were either designed to deceive voters or a "huge mistake". "I do not want to compete on this territory ... the most important is that the role of the state in coming years is not widening the social role of the state because we would not be able to finance it, it would ruin our economy," he said.
Hungary, which joined the European Union in 2004, will hold its fifth free post-communist elections on April 9 and 23.
After four years of budget overshoots under the Socialists, which have effectively scuppered Hungary's chance of joining the euro in 2010, Gyurcsany is walking a thin line between winning voters and the risk of a big fall in the value of the forint.
Fidesz has piled on the pressure since the election campaign kicked off in January, with what economists say are populist pledges of tax cuts for employers and an extra month's pension.
Some of the opposition's promises mirror the strategy which surprisingly helped the Socialists return to government in 2002, prompting concerns from investors the government will make similar promises in 2006 if their support dips.
But Gyurcsany said the Socialists had learned their lesson.
"I know that we have to regain the reliability of our budget planning and we have to show a strong commitment to implement some very important reforms...I will not cause any disappointment," he said.
The media-savvy 45-year old millionaire who ousted the lacklustre Peter Medgessy as Prime Minister in a party coup has faced a delicate balancing act between winning over voters and reassuring investors since he took power in October 2004.
He has rebuilt core Socialist support, pulling back a 10 percentage deficit in opinion polls to run even with Fidesz, according to the most recent surveys published last week.
Gyurcsany said the desire simply to kick out the incumbent government, which had happened in every election since 1990, had diminished, noting the small swings in 1998 and 2002.
"The trend has started to change and I will be the first winner from this trend," he said.
At the same time, to the surprise of some financial analysts, there has not been a run on the forint, despite the huge budget deficit, which is the biggest relative to the size of the economy in the European Union.
But analysts warn the risk of a crisis remains real.
The European Commission has given Hungary to September to present a credible plan to cut its deficit to 3 percent of gross domestic product from 6.1 percent in 2005 and has said it will no longer tolerate any budget slippage.
More recently, all the main credit ratings agencies have said they want to see spending cuts from a new government, otherwise they will cut the country's debt rating.
When asked if he was more scared of the Commission cutting aid or of financial markets, Gyurcsany said:
"(I am more scared of) the market, always...I know that the market is keen to have new evidence and they understood that we can serve this new evidence by the nature of the politics just after the election. I am ready to do that."
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