Hungary to Freeze Budget Items to Escape EU Shackles

Hungary is freezing some budget expenditures and is ready to take further steps, including raising Europe’s highest bank levy, to exit the European Union’s budget monitoring and remove the threat of funding cuts.

The Cabinet will freeze 92.9 billion forint ($412 million) of planned spending this year and in 2014 and is ready to save another 80 billion forint next year mostly by delaying payments for projects such as soccer-stadium construction, Economy Minister Mihaly Varga told reporters in Budapest today. If those measures are insufficient, Hungary is also prepared to raise the bank tax and the financial-transaction levy.

Hungarian Prime Minister Viktor Orban is seeking to escape the EU’s excessive-deficit procedure that threatens cuts in funding from the trading bloc, which account for 95 percent of infrastructure development in the country. Hungary has been under budget monitoring since joining the bloc in 2004.

“We are doing everything on our part to remove Hungary from the hall of shame and to exit the excessive-deficit procedure,” Varga said.

The forint traded at 292.91 per euro at 1:10 p.m. in Budapest, from 293.01 yesterday. It has strengthened 1.1 percent in the past five days, the sixth-best performance among more than 20 emerging-market currencies tracked by Bloomberg.

‘New Measures’

Hungary implementing “new measures” would ensure that the budget gap stays within the EU limit of 3 percent of economic output this year and next and may allow the country to exit the excessive-deficit procedure, EU Economic and Monetary Affairs Commissioner Olli Rehn said on May 3. The shortfall may be 3 percent of output this year and 3.3 percent next year, the European Commission said.

“The first two fiscal adjustment measures should be sufficient in size to make the” European Commission “revise the Hungarian budget-balance forecast and that would allow Hungary to exit the EDP by early summer,” Zoltan Torok, a Budapest-based analyst at Raiffeisen Bank International AG (RBI), wrote in an e-mail.

Hungary passed multiple rounds of fiscal cuts last year to prevent the loss of EU funds, reducing the deficit to 1.9 percent of GDP. The government is taking additional budget steps even as it considers them “unnecessary” to meet the targeted 2.7 percent shortfall this year and in 2014, government spokesman Andras Giro-Szasz said in Budapest today.

The government is sticking to its economic-growth forecast of 0.7 percent for this year as the Cabinet will focus on spending cuts in areas that will have the least impact on economic performance, Varga said.

Orban has relied on the nationalization of private pension funds and extraordinary levies on energy, retail and telecommunications companies as well as Europe’s highest bank tax to close budget holes. The government has said lobbying by companies hurt by taxes and energy-price cuts are responsible for the EU’s concerns about budget policy.

To contact the reporters on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net; Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; Wojciech Moskwa at wmoskwa@bloomberg.net

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