Gyurcsány, who on June 10 unveiled his plan to cut Hungary’s budget deficit, has been criticized for relying too heavily on tax increases, which threaten to spark inflation and slow economic growth. The country’s deficit is the European Union’s largest deficit when compared with the size of the economy.

“Long-term and sustained balance requires structural reform,” Gyurcsány said at a meeting with business and trade union leaders in Budapest on Thursday. The first step is toward raising revenue but in the next year and a half that will be amended with substantial structural reforms.”

Gyurcsány reiterated a plan to reduce the budget deficit by Ft 350 billion ($1.6 billion) this year and said he wants to reduce the gap by more than Ft 1 trillion forint each in 2007 and 2008. The shortfall will reach 8% of gross domestic product this year, even after the measures.

Hungary will aim to save on central administration, healthcare system, education and state price subsidies to natural gas, electricity, drugs and public transport, Gyurcsány said. Reform has already started in state bureaucracy and the government will tackle education “within weeks,” he said.

He pledged to take on public transport this year and start overhauling the healthcare system and pensions. Hungary won’t curb pension spending and family support and some form of housing subsidies will remain for those most in need, Gyurcsány said. (Bloomberg)