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Fiscal Council clears budget bill for final vote

Telco

The 2.9% fiscal deficit target in next year’s budget as well as the planned moderate reduction of state debt are achievable, Hungary’s Fiscal Council said in an opinion issued on Friday, clearing the bill for final vote. The budget bill targets a general government deficit of 2.9% of GDP, and is based on GDP growth of 2% and average annual inflation 2.4% in 2014.

The Council noted that fresh developments, namely improved growth prospects since the submission of the bill, reduced risks attached to revenues both in the base year and in 2014, and the reserves set aside are sufficient to cover risks. It noted, however, that inflation falling significantly below the budget bill’s projection could materially endanger the debt ratio reduction, and no money should be spent from the reserve, namely from the Country Protection Fund, until next September 30.

The council said that the protection fund, although much smaller than this year, is enough to handle the revenue side risks which it deemed to be still there but diminished since October. However, if the economic cycle turns out to be weaker than expected, the fund could not cover the resulting revenue shortfall and expenditure rise, the council said. It also warned that the targeted improvement in the debt ratio is slight and the targeted 2.9%-of-GDP deficit ratio is only 0.1% below the European minimum, requiring a tight budget stand from the government.

With the improved prospects, the Council now sees the HUF 100 billion set aside against revenue risks in the so-called Country Protection Fund sufficient to counterbalance these risks.

In its previous opinion, issued early October, the Council advised the government to rethink the level of reserves in the budget – HUF 120 billion of general reserves and HUF 100 billion in the “country protection fund” – which are significantly lower than this year. The Council recalled that the government saw no need to amend these reserves and even slightly cut the general reserves from HUF 120 billion to a level close to the legal minimum of 0.5% of total expenditure. Among still existing revenue risks, the Fiscal Council named revenue from VAT, noting that the already tight target was raised by HUF 14 billion to fund additional Budapest transport subsidies.

Connecting all tills online to the tax office is still in delay, the opinion said, noting moderate risks regarding targeted revenue from the financial transaction duty and from the telecom tax.

The Council did not see any significant risks on the revenue side, and detected no intention to overspend during the parliamentary procedure.

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