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Fiscal Council recommends alternative macro projection for 2013 budget draft

Hungary's Fiscal Council has proposed the government draw up an alternative, less favourable macroeconomic projection because of growth risks in an opinion on the 2013 budget draft.

The opinion, published on the website of Parliament, was adopted by a unanimous decision at a Council meeting on June 8.

The 1.6% growth projection on which the 2013 budget draft is based will only materialise if domestic demand picks up and investor confidence improves significantly, the Council said. The government must be prepared to manage the existing downward risks, such as risks related to the euro-zone, which, if they become reality, could affect both sides of the budget, the Council added.

The Council said the allocation for the Country Protection Fund should be raised and amendments to reduce risks should be made based on the alternative projection.

It said that achieving the deficit and state debt targets would be realistic if such an alternative projection is prepared.

The Council noted that achieving the government's deficit and state debt reduction targets for 2013 assumes the full implementation of measures outlined in the Széll Kálmán Plan 2.0, an updated structural reform programme. It noted that more adjustments could become necessary on the revenue and expenditure sides to achieve targets in light of economic risks.

The government targets a 2.2% of GDP deficit for 2013 in the budget draft, in line with its latest Convergence Plan.

The Council recommended that the government ensure the timely adoption of legislation resulting in increased revenue and savings planned in the Széll Kálmán Plan 2.0, citing flaws with some revenue and spending targets in the draft.

The government should also review some risky uncapped spending items and take steps to reduce the danger of an overshoot, the Council added.

Despite a worse than expected economic performance in 2012, the fiscal deficit target - 2.5% of GDP - can be met with additional measures taken in the updated structural reform plan and with the permanent freezing of temporarily blocked budget reserves, the Council said. The Council added that it would prepare a detailed analysis of first-half development in July.

The Council warned that some of the measures already taken or planned to preserve economic stability weaken growth prospects. Some of the tools used to achieve the deficit targets are "dysfunctional" and their effect on growth is "disputable", the Council added.