Hungary Audit Office Sees Risks in ’12 Budget on Taxes, Spending

Hungary’s 2012 budget contains risks for both revenue and spending and its effectiveness can’t be judged as background calculations and documents are missing, the state audit office said.

The audit office was unable to assess the “overall feasibility of the budget due to the lack of background calculations and documents supporting a significant part of the 2012 revenue targets” and discrepancies in the data provided, the office said in a statement posted on its website today.

Hungary, which is rated the lowest investment grade at Fitch Ratings, Moody’s Investors Service and Standard and Poor’s, is struggling to trim its budget deficit to less than 3 percent of output next year as slower growth cuts tax revenue. The government raised or introduced new taxes, on top of already existing extraordinary taxes levied on several industries, and froze wages in the public sector to rein in the shortfall.

The audit office estimated that 10 percent of the planned tax revenue carried risk, adding that the feasibility of 27 percent of the targeted tax revenue “couldn’t be judged.”

“A potential deterioration in macroeconomic indicators compared with targeted levels will render several tax revenue targets, especially the value-added tax, risky,” it said.

The government is basing its 2012 budget on a growth forecast of 1.5 percent, Economy Minister Gyorgy Matolcsy said last month. The central bank expects the economy to expand by 1 percent next year, according to the bank’s Inflation Report published in September.

The budget doesn’t calculate with 95 billion forint ($452 million) in losses at the central bank that will have to be covered by the government, according to the statement.

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

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