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Gov't prepares for Ft 350 bln budget consolidation

The government is preparing measures which will reduce the general government deficit by Ft 300 billion-Ft 350 billion, national daily Népszabadság reported on Wednesday, citing unnamed sources.

The measures will include increasing preferential VAT and simplified business tax (EVA) rates, cutting ministry budgets, freezing public sector wage scales and reducing drug subsidies, the paper said. On the revenue side, about Ft 150 billion of the correction would come from raising the 15% preferential VAT rate to 20%, in line with the main VAT rate. Raising the EVA rate from 15% to 20% would bring in additional budget revenue of Ft 30 billion. On the expenditure side, cutting ministries' budgets and freezing public sector wages would save Ft 130 billion. A cut in drug subsidies would save a further Ft 70 billion, Népszabadság wrote.
The lower estimate would well serve the market and the EU, but in order to meet the deficit target - especially if motorway construction projects are not to be funded off-budget - a reduction of Ft 500 billion would be necessary, market sources told Népszabadság.



In related news, the government has scrapped plans to issue bonds to finance motorway construction projects in a public-private partnership, Népszabadság reported. The decision was made after a year and a half of failed attempts to work out a contract for financing the stretches of motorway which would pass muster with the EU statistics office.
If the government has indeed decided to shelve the plans, Hungary's general government deficit could swell from the targeted 5% of GDP in 2006 to 6.5% of GDP, making Hungary's introduction of the euro in 2010 as planned an impossibility.
Analysts note that the European Central Bank would be likely to evaluate the pace of Hungary's targeted deficit reductions - made in the interest of joining the eurozone in 2010 - as unsustainable. The government will continue to finance motorway construction with loans and direct budget expenditures, Népszabadság writes.