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Experts urge excise duty raise and spending cuts

  A likely revenue shortfall in Hungary’s this year’s budget - estimated to be HUF 100-200 billion ($477-954 million) -- should be compensated for through an increase in excise duties and a cut in expenditures, researchers told MTI on Friday. At the same time, they warned against raising the deficit target from a planned 2.6% of GDP.

Earlier in the week Prime Minister Ferenc Gyurcsány said Hungary’s GDP and inflation will most likely fall more than forecast in budget calculations, causing a shortfall in budget revenues compared to plans, and requiring a review of the budget. The 2009 budget was based on a 0.9% contraction of GDP and on annual average inflation of 4.5%.

A HUF 200 billion gap, based on a forecast 2.5% contraction of GDP and 2.5% inflation, could be offset in the short-term only through an increase in excise duties and a freeze of expenditures, Gábor Karsai, deputy head of the GKI research institute said.

Karsai said reforms affecting the pension and social systems could and should be introduced in the middle-term. Karsai said fuel excise duties could be raised temporarily, until the price reaches a specified limit, and spending by ministries could be reduced.

Research institute Kopint-Tárki forecasts a 1.5% GDP contraction, which requires a fiscal adjustment of nearly HUF 100 billion, institute CEO Eva Palócz said. Ms Palócz also supported an increase in excise duties, which could bring in an additional HUF 30-40 billion, with the rest of the adjustment coming from reducing expenditures. VAT rates should not be raised, Ms Palócz said.

With likely inflation of 3% compared to the forecast 4.5%, expenditure targets could be cut accordingly, Ms Palócz said. State developments except for those financed with EU support could be postponed, according to Ms Palócz.

Raising the 2.6%-of-GDP general government deficit target would hurt Hungary’s credibility, Karsai said. He noted, however, that any deficit below 3% of GDP in 2009 would be considered to be positive in international comparison.

The deficit target should be kept unchanged at 2.6%, since even the financing of this low deficit is unlikely to be simple, Ms Palócz said. (MTI-Econews)