Hungary gov’t plans for tight 2009 budget – paper

Banking

Hungary’s minority Socialist government is preparing for a tight 2009 budget to create room for tax cuts, as added higher pension costs and interest expenditures largely offset extra revenue generated by high inflation and the broadening tax base, national daily Népszabadság said on Thursday.

The government contemplates to raise the main VAT rate to 25% from 20%, while lowering the VAT rate on food to 18% from 20% could bring in more additional revenue, perhaps enough to allow the to halve the 4% “solidarity” tax, reduce payroll taxes or make smaller cuts in ministries’ budgets. The government plans to cut ministries’ budgets 4-5% in 2009, Népszabadság wrote.

Even though the general government deficit is expected to be just 3.8% of GDP, under the 4.0% target in the convergence plan, the Finance Ministry attributes the better-than-planned forecast to one-off effects, such as better-than-expected EU payments, the paper noted.

Pensions are to cost the state coffers an extra Ft 58 billion this year and servicing higher interest rates will set the budget back by Ft 54 billion, while public administration expenses will rise by Ft 10-11 billion. These items are against the backdrop of a combined Ft 140 billion in extra revenues from payroll taxes generated by higher inflation and measures to crack down on the shadow economy, the paper said. (MTI-Econews)

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