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Govt raises both revenue, expenditure, maintains deficit target in 2013 budget draft

Telco

The government has raised the deficit and the revenue targets in the 2013 budget draft both by HUF 170 billion, leaving the deficit unchanged at HUF 660 billion, or 2.2% of GDP, National Economy Minister György Matolcsy told the press after a second reading of the draft by the government on Thursday. The government raised budget reserves, as recommended by the Fiscal Council in an opinion on the draft published on Monday.

The draft still assumes 1.6% growth for 2013 - the Council, citing growth risks, proposed the government to prepare an alternative, lower-growth scenario.

The government will send the bill to the Fiscal Council and submit it to Parliament on Friday, Matolcsy said. Parliament is expected to approve the main budget figures on July 13 and the budget act, usually passed in the middle of December, could be voted in on September 23, he said.

On the expenditure side, HUF 120 billion will be used for top-ups at ministries and state organs, while HUF 50 billion will go to the Country Protection Fund, raising the fiscal buffer to a total of HUF 100 billion.

Matolcsy said the government left ten main figures in the 2013 budget draft -- including a projection for 1.6% GDP growth -- unchanged after a second reading on Thursday.

Matolcsy on Thursday said the government targets HUF 280 billion from the planned duty on financial transactions next year.

The target is well over the HUF 130 billion announced in May.

Matolcsy said the rate of the duty, 0.1%, will remain unchanged, but the question of an upper limit remains.

The government is discussing several issues with the Hungarian Banking Association, such as the cap on the financial transactions duty, the possible withdrawal of the extraordinary bank levy and a growth pact, he said. A new home creation program is also being discussed with banks, he said as the present one "is not working".

"If the bank levy is withdrawn, there can be no upper limit on the financial transactions duty," he added, explaining that the revenue from the bank levy must be replaced.

Without an upper limit the financial transactions duty before parliament could bring in HUF 300 billion-400 billion next year, he said.

The levy on banks had been expected to yield HUF 60 billion in 2013 according to earlier information.

The government expects HUF 20 billion savings from making retirement for those who are transferred from local to central government employment and are over the 62 years in the public sector compulsory in 2013, which will cut employee numbers in the sector by 10,000-11,000, Matolcsy said. The transfer of educational, health and other institutions to the central government affects about 250,000 employees.

After the revenue and spending rise, the draft targets revenue of HUF 15,500 billion and expenditures of HUF 18,840 billion.

The draft targets a decline of state debt from 78% of GDP to 76%. It was calculated with 4.2% annual average inflation and a HUF/EUR rate of 299.4. The current account surplus is expected to reach 4% of GDP next year after 2% this year.

Matolcsy said GDP is expected to fall in the first half of this year but return to growth in the second half. The economy is expected to stagnate for the full year, he added.

Hungary's GDP contracted an unadjusted 0.7% and a calendar-adjusted 1.2% yr/yr and was down a seasonally- and calendar year-adjusted 1.2% quarter-on-quarter.

Matolcsy expects the EU to end its excessive deficit procedure against Hungary next spring. The first step in this direction will realistically happen on June 22 when the Ecofin could withdraw a suspension of part of Hungary's 2013 cohesion fund support as the Commission now projects Hungary's 2013 fiscal deficit at 2.7% of GDP, well below the 3% limit. The next step can be next spring when Hungary can prove to have delivered the 2.5%-of-GDP deficit target for 2012 and the Q1 2013 figures will be available.

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