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Fiscal council sees 2010 budget gap rising as much as full percentage point of GDP

Hungary's fiscal council, an independent body recently established to issue opinions on budget bills, said in an analysis that higher state spending and lower revenue resulting from the economic crisis could add as much as a full percentage point to the 2010 3.8%-of-GDP deficit target.

Higher spending on unemployment benefits as the jobless rate rises as well as operating losses of state-owned companies and the doubled level of state guarantees could boost budget expenditures, the council said. Risks on the revenue side include the effect of accrued losses on corporate taxes. Additionally, local council spending could remain steady or even rise in spite of the fall in central budget support, as municipalities dip into their liquid assets, causing their deficits to widen.

External balances have improved tangibly already this year and will cause the country's rate of foreign debt to fall and reduces its vulnerability, the council said.

The council expects the economic contraction to slow to 0.5% in 2010 from around 6.5% in 2010, then it sees the economy expanding 3%-3.5% in 2011-2012. Domestic consumption will probably grow at a slower rate than headline GDP because of the higher costs and limits of Hungary's external financing. The net effect of government measures, including ones to reduce the tax burden on companies could boost gross output by 1%-1.5% in the long term.

Parliament approved a bill establishing the budget council, an independent body that issues opinions on budget bills, in November 2008. It elected György Kopits to chair the council and Gábor Obláth and Ádám Török as members in February. (MTI – Econews)