UPDATE - 2012 deficit goal achievable, most measures on spending side, ministry says

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The Hungarian government will keep to the 2.5%-of-GDP fiscal deficit target set in its structural reform program and convergence plan next year in spite of the changing global environment and European debt problems, the Ministry of National Economy said in a statement late on Thursday.

The bulk of the measures in the 2012 budget plan are on the spending side in spite of allegations to the contrary, the ministry said, in an apparent reference to a report by the National Bank of Hungary (MNB) staff published earlier on Thursday.

The calculations of the government and the MNB meet at the point that the Bank also says the 2012 deficit goal could be met, the ministry statement said.

The MNB report projected the 2012 ESA deficit at 3.1% of GDP without further measures but said the shortfall could be reduced to the 2.5% target if the bulk of the untied reserves in the budget bill, worth HUF 200bn or 0.7% of GDP, will remain unspent.

The MNB said measures published to date are expected to improve the central government's position by a factor of 1.4% of GDP compared to this year's adjusted deficit, less than the 2.3% improvement targeted by the budget bill, and about 0.9 percentage points of the improvement will come from more revenue and only 0.5 percentage points from expenditure cuts. Not spending the untied reserves would raise the expenditure-side measures to 1-1.1% of GDP, the MNB researchers said.

Targets in the 2012 budget bill show the government expects 1.5 percentage points of the planned improvement to come from revenue, 0.7 percentage points from savings on primary expenditures and 0.1 percentage point from lower net interest expenditures, the central bank report calculated.

Part of the gap between the government's and the MNB's projection result from differences in methodology as the MNB did not take into account steps the legal preparation of which is underway, the ministry said. The ministry also refused the doubts raised regarding the additional revenue the government projects from more efficient tax collection.

The MNB named two measures it did not take into account in the absence of sufficient details. One is additional revenue expected by the government from increasing the number of products on which an environmental fee is charged, and the other is savings planned from a reshuffle of disabled pensions and rehabilitation care. The bank's report noted that the measures if materialize could improve the balance.

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