Hungary Fiscal Council Replacement Boost Risk Costs

The Hungarian government’s plans to replace the independent Fiscal Council with a new three-member body is hurting the nation’s risk assessment as the new panel will have less power, the council’s chairman said.

The government submitted a bill to Parliament yesterday that abolishes the fiscal council’s 40-member office as of Dec. 31 and creates a new council consisting of the heads of the central bank and State Audit Office and an economist appointed by the nation’s president. Existing central bank and audit office structures render an “independent and expensive administration unnecessary,” according to the bill posted on Parliament’s website.

“The new council will clearly have a weaker mandate,” Fiscal Council Chairman Gyorgy Kopits said at a press conference in Budapest today. The planned changes are hurting the country’s risk assessment and boost the risk of financing costs “getting stuck at current elevated levels or even rise higher.”

The Fiscal Council was set up last year to oversee budget planning and execution after the country’s spending binge forced it to obtain an International Monetary Fund-led bailout. The body has criticized the government’s fiscal plans, which include imposing temporary industry-specific taxes and funnelling private-pension contributions to the state.

The bill doesn’t elaborate on the future of the current Fiscal Council members, whose mandates expire in 2018 and are irrevocable.

The new council will be entitled to form an opinion on the budget and ask the president to resend the budget to Parliament for further consideration if they deem necessary, according to the draft.

The measures will create a $2.5 billion annual hole in the budget from 2012 unless structural spending cuts are implemented to balance income tax cuts, the council said last month.

The transparency of the budget “significantly deteriorated” from previous years, it said.

“It seems as if they want to shoot the messenger because they don’t like the message,” Kopits said.

Parliament, in which the governing Fidesz party has a two- thirds majority, will vote on the proposal by Dec. 15.

To contact the reporter on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editor responsible for this story: James Gomez at jagomez@bloomberg.net ebalazs1@bloomberg.net

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