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Economists see quick solution for Hungary's troubled economy

The problems of Hungary's sluggish economic growth and big budget gap - the results of poor economic policy - could be solved in just one-and-a-half to two years, the heads of several economic think tanks said at a roundtable talk.

Pénzügykutató chief researcher Mária Zita Petschnig, head of the Hungarian Growth Research Institute György Matolcsy and Kopint-Tárki CEO Éva Palócz agreed that Hungary's economy reached a low point in 2006-2007 in terms of growth and balance. Though the general government deficit could narrow to its 2001 level of 4% of GDP this year, the prospects for growth are far worse than seven years ago, they said.

Matolcsy said about 1.5 million jobs were eliminated because of shock therapy during the recession in the 1990s, and these lost jobs still hold back growth today. But with the appropriate programs and economic actors, as well as with the new government's consent, as many as 1 million new jobs could be created in Hungary in just 5-10 years. To spur growth, companies' payroll taxes ought to be reduced Ft 1,000 billion in one-and-a-half to two years. He added that the Hungary's framework for paying out EU development subsidies should focus more on creating jobs.

Palócz said such a drastic tax reduction in the short term was unrealistic if the budget gap is not to be widened. She suggested employers' payroll taxes could be reduced Ft 600 billion at most.

Petschnig noted that tax reforms are not a wonder cure. They will not solve the deep structural problems of Hungary's slow economic growth. She said Hungary's GDP growth would pick up again to around 4% by 2011.

Petschnig said Hungary's labor market problems would take more than one or two years to solve. She blamed the problems on Hungarian's low mobility, the government's immigration policy, the quality of professional training and a social welfare system that discourages people from working. (MTI – Econews)