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Central bank warns 2011 budget draft preserves "bad structure"

The National Bank of Hungary believes the 2011 general government target can be achieved, but notes that temporary budget revenue has been used to cover permanent tax cuts, preserving a bad budget structure, the central bank said in a statement on Thursday.

The MNB achieving the deficit target — without structural reforms necessary for sustainability — was insufficient in and of itself. The government wants to achieve the deficit target primarily by revenue-side measures, while meaningful cuts on the expenditure side or deep structural reforms are not expected to take place, it added.

The bank noted that the government measures would raise inflation.

The MNB puts the 2011 general government deficit around 2.5% of GDP in 2011, well under the 2.9% target in the 2011 budget draft.

The MNB believes Hungary's low budget deficit and the start of growth after the recession could make a good opportunity for establishing a sustainable fiscal path for the long term, the MNB said. (MTI-ECONEWS)