Hungary Approves Budget Ignoring IMF Advice on Growth

Hungarian lawmakers passed the 2013 budget, keeping extraordinary company taxes opposed by the International Monetary Fund and which businesses blame for a lack of investment and economic growth.

The budget, setting a 2.7 percent of economic output deficit target and projecting an increase in gross domestic product of 0.9 percent, was approved 248-9 by deputies, according to Duna TV coverage of the vote today in Budapest.

Prime Minister Viktor Orban’s reliance on extraordinary tax contributions from banking, energy, retail and telecommunication companies to close budget holes has led to a recession. Lending and investments have declined, Hungary’s credit rating was downgraded to junk and the government is deadlocked in aid talks with the IMF, which has urged the an overhaul of policies to spur the economy.

“Hungary is battling a serious growth problem,” the Joint Venture Association, a business lobby group that counts the biggest domestic and foreign investors among its members, said in a statement today. “The primary reason for the weak economic performance that typically trails that of countries in the region is the lack of an environment that ensures the security and profitability of investments and leads to a sustainable growth path.”

Bank Tax

Orban failed to deliver on a promise to cut a special bank tax in half from 2013 as part of a salvo of tax measures aimed at keeping the budget deficit within the EU limit of 3 percent of GDP and prevent the bloc from slashing infrastructure funding. New taxes on companies include a financial transaction levy and a tax on utility infrastructure.

The budget cuts debt, funds job-creation programs and lays the basis for sustainable growth, Orban said in an e-mailed statement. The government needs to avoid spending 2013 fiscal reserves to meet next year’s budget-deficit target, Fiscal Council Chairman Arpad Kovacs told lawmakers today.

Hungary’s investment rate is the lowest in central and eastern Europe and the government needs to turn this around, Mihaly Varga, the chief aid negotiator with the IMF and EU, told a conference today. The Cabinet predicts a 1 percent contraction in investments in 2013, he said.

Recession Continues

Hungary’s recession probably continued in the fourth quarter after industrial output plummeted 3.8 percent in October from a year earlier, the most in almost three years. Austerity measures at home and abroad have hurt domestic demand and slowed exports, while the withdrawal of funding by western banks and a spike in non-performing loans have cut credit.

The central bank will probably lower its 0.7 percent GDP growth forecast for 2013 in the next inflation report, Magyar Nemzeti Bank President Andras Simor said on Nov. 29. The forecasts will be published on Dec. 18. Hungary’s economy may stagnate in 2013 after a “longer” recession, Morgan Stanley said Dec. 10.

Fiscal or monetary stimulus won’t restart Hungary’s growth, Simor, whose mandate expires in March, said Dec. 7. The government needs to create a predictable policy environment and stop a decline in lending to help the economy, he said.

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