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2009 budget draft planned conservatively; contains reserves

The 2009 budget has been based on conservative planning and will include the same type of buffers or reserves introduced after the fiscal tightening, Finance Minister János Veres said after the government discussed the 2009 budget draft.

The Hungarian government targets a ESA95 general government deficit of 3.2% of GDP in 2009, in line with the respective target in the country's convergence plan, Veres said.

He said he cannot provide precise cash flow targets before Thursday evening when the draft will be finalized based on a discussion at a cabinet meeting on Wednesday.

On top of Ft 56.5 billion in general reserves, the budget will include Ft 78 billion as central reserves and per-chapter reserves of Ft 80 billion, of which Ft 75.6 billion will be frozen and will be freed up if the planned tax reduction generates additional revenue. Similar to last year, there will be an additional special reserve of Ft 136 billion, to be freed up depending on the outcome of wage talks which are due to start next week, Veres said.

Reserves add up to Ft 350 billion, slightly down from Ft 375 billion of total reserves in the 2008 budget, Econews calculated.

The Finance Ministry calculated with 3.0% GDP growth for 2009 when drawing up the budget - up from this year, but under the earlier projection because of a slowdown in global economic growth.

Consumer price inflation is projected to slow to 4.3% next year under budget calculations and per capita real wages to rise 2.4% after a slight rise this year. As the result of tax cuts, a gross wage increase of 6.3% is expected to translate as a net increase of 6.8%.

The ministry calculated with export growth of 8.0% and import growth of 7.6%, Veres said. Export and import growth will slow from the double-digit rates in recent years due to the slowdown in the EU, Hungary's main export market.

Household consumption is expected to rise 1.9% and public consumption is seen rising 0.8%, while gross capital accumulation is forecast to rise 6.0%.

Since 1992, Hungary's budget deficit has been under next year's 3.2%-of-GDP target just once, Veres said. The deficit calculated with the EU's ESA '95 methodology will differ from the cash flow-based deficit by just one-tenth of a percentage point, he added.

The plan targets a stagnation in nominal gross budget debt, that is, a fall in terms of GDP, Veres stressed. Interest payment obligations of the central budget are calculated at Ft 1,157 billion, just a hair over the Ft 1,148 billion forecast for this year. After a fall in the number of staff employed at budget-funded institutions this year, public sector work force numbers will remain stable in 2009.

Veres stressed that co-financing for EU-subsidized projects will have top priority in next year's budget bill.

In light of inflation and real wage growth, pension payments are seen rising 5.6% in 2009 and family subsidies are set to increase 4.3%.

The budgets of local councils are expected to rise 8.7% to some Ft 3,500 billion including a Ft 1,422 billion subsidy from the central budget, Veres said. (MTI – Econews)