Fiscal Council concurs with 2012 budget draft, but sees significant risk

Hungary's Fiscal Council concurs with the government's 2012 budget draft but says it carries significant risk, council chairman Zsigmond Járai said at a press conference on Friday.

Among the risks are lower than expected growth in the eurozone, especially in Germany, and the chance tax revenue will be under the target, Járai said. The Fiscal Council proposes the government consider introducing new taxes.

The government's 2.5%-of-GDP general government target is achievable, but with significant efforts, he said.

The resolution on the budget was taken by the council's three members with a vote of 2 to 1. Central bank governor Andras Simor voted no, as the National Bank of Hungary (MNB) calculates GDP growth will be lower and inflation higher than the government targets.

The MNB projects GDP growth of 1% and average annual inflation of 4.7% in 2012. The government targets 1.5% GDP growth and 4.2% average annual inflation in the 2012 budget draft.

Járai, who is also the MNB supervisory board chairman, said the central bank was expected to have a HUF 120bn loss in 2011 which would require a HUF 95bn top-up of the bank's reserves through a transfer from the central budget by the government. The top up should be made this year, he said. If the government waits until next year, the top-up will add 0.3 percentage point to the general government deficit, he added.

The central budget must make up for any loss made by the central bank within 8 days after the approval of the MNB's annual report, which usually comes in the spring.