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Hungary watchdog sees 2010 budget gap above target

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Hungary's fiscal watchdog sees the country's budget deficit at 4 percent of GDP this year, above the government's 3.8 percent target.

That goal, set before Hungary halted talks with its lenders in an IMF/EU financing deal that expires in October, could still be reached with strict cost controls, Gyorgy Kopits, Chairman of the Budget Council, said on Wednesday.

But he said moves to exempt costs associated with pension reforms from deficit calculations -- as requested of the European Union by Hungary and other east European countries -- were not viable as they would lack market credibility.

Kopits told a news conference Hungary's deficit goal for this year was "attainable, give or take a few tenths of a percentage point, which is within our tolerance limit.

"The key ... is to stick with plans to cut costs, which is not easy and requires strict cost control from the government."

The country's recently elected centre-right government confounded markets last month by halting talks with its lenders, but said it would stick to this year's 3.8 percent target.

It has not yet given details on next year's budget, but signalled it had no intention of cutting the deficit below 3 percent, which Hungary is required to do under the EU's Excessive Deficit Procedure (EDP).

The Budget Council, created last year to oversee the country's fiscal processes, said in a report published on Wednesday that according to European accounting standards (ESA), the deficit will be 4.0 percent in 2010, 4.2 percent in 2011 and 3.4 percent in 2012.

In order to help achieve this year's target, the government aims to collect 200 billion forints ($921 million) in taxes from the financial sector both this year and in 2011.

The Budget Council said it did not reckon with revenues from the tax beyond 2010, and this year's projection also assumed the government fully implemented a 130 billion forints spending freeze, local government deficits would not overshoot and state companies would not need additional subsidies.

Neighbouring Romania is struggling to generate expected revenues from a higher VAT rate as it struggles to reach its own budget deficit target.

GROWTH SEEN PICKING UP, CONSUMPTION SLUGGISH

The Council sees Hungary's economic growth at 1 percent this year, and at 2.9 percent in 2011, followed by annual growth around 3 percent until 2014.

"In the medium term we continue to see 3 percent growth, but consumption growth could only be more moderate than that, as the stock of savings is rising, and on the other hand households' disposable income is decreasing due to an increase in debt repayments... and access to new lending could narrow," it said.

The recent proposal by eastern European countries to allow accounting for payments related to private pension funds outside the budget was "little more than cosmetic," Kopits told reporters.

Other council members added that the proposal does not create more fiscal room for governments, as they would still have to maintain their primary balances, and markets would not accept the resulting lower overall budget deficits as credible.

 
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