Hungary's parliament approves key 2007 budget figures

Hungary's parliament on Tuesday approved the key figures of next year's budget which sees cutting the deficit to 6.8 percent of GDP and which will be the litmus test of the government's fiscal adjustment programme.
As a result of overspending in the past five years this year the deficit is expected to hit 10.1 percent of gross domestic product, the highest in the European Union.
The 2007 budget is expected to put the country back on the road to euro adoption with a big cut in the deficit and meeting the target will be key for regaining credibility with foreign investors who hold billions of euros worth of Hungarian assets.
"We cannot divert from the 6.8 percent target as that would cost very much to the country," Finance Minister Janos Veres told public radio on Tuesday morning before the vote. "Next year's budget will prove that the government's changed (fiscal) policy carries weight and the country is able to keep to this track," Veres added.
Parliament approved the central state budget deficit at 1,656.5 billion forints ($8.63 billion), with revenues at 6,669.5 billion and expenditures at 8,326 billion forints.
The public sector deficit, which includes the central state budget, the healthcare and pension funds and independent government funds, is targeted at 1,668 billion forints, excluding local governments. The final vote on the 2007 budget will be held on December 21 but Tuesday's approval means the key figures cannot change.
Analysts said next year's deficit target looks realistic but it is equally important that the government should push ahead with structural reforms in healthcare, the pension system and at local governments to make spending cuts sustainable. The median forecast of analysts for next year's deficit is 6.8 percent.
"In the past five years the deficit targets were constantly missed and now there is a fairly good chance that the 2007 target will be achieved," said Bence Lanyi at Raiffeisen. "But foreign investors also want to see how the reforms progress," he added.
The government launched tax hikes and spending cuts in June to reduce the deficit to 4.3 percent by 2008, the biggest fiscal cuts to date in Hungary, which will curb economic growth to 2.2 percent next year according to the government's projection. But the deficit and debt may start creeping up again if the reforms suffer a delay.
Analysts said the government has taken steps which show a willingness to reform, for example in healthcare, state subsidies and the pension system but more long-term steps are needed in the local government sector and the pension system.