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Govt submits 2012 budget bill to Parliament

The government submitted on Friday its 2012 budget bill to Parliament, government spokesman András Giró-Szász said.

National Economy Minister György Matolcsy said the 2012 budget would serve the financial and economic defense of the country. It targets a general government deficit of 2.5% of GDP, he added, confirming the earlier announced target.

The target is down from a 2.94% of GDP deficit in the 2011 budget, excluding one-off revenue from the transfer of private pension fund assets to the state.

The 2012 budget bill targets revenue of HUF 13,950.63bn and expenditures of HUF 14,527.17bn, resulting in a deficit of HUF 576.54bn, the bill published on the website of Parliament shows. The targets are for general government revenue, excluding local councils.

The bill shows the National Pension Fund breaking even with revenue and expenditures of HUF 2,796.91bn. Revenue of HUF 1,721.24bn and expenditures of HUF 1,755.66bn are targeted for the National Health Fund, resulting in a deficit of HUF 34.42bn.

The government expects a general government surplus of 2-2.5% of GDP, taking into account assets of former private pension fund members transferred to the state, Mr Matolcsy said. The primary surplus will be 1.1% of GDP, and state debt will fall to 73% of GDP by year-end, he added.

The 2012 budget bill is based on a HUF/€exchange rate of 268, but the government also reviewed possible scenarios calculating with rates of 280 and 300, he said.

The bill puts average annual inflation at 4.2%.

Interest expenditures are set to fall to 3.6% of GDP in 2012 from 3.8% in 2011, but will still be over HUF 1,100bn.

The government expects investments to grow 3% in 2012.

The unemployment rate will be 10-11% in a worst case scenario next year, Matolcsy said. Hungary will have a current account surplus again, consumption will grow and real wages will rise 4%, he added.

Next year will be the first in two decades when pensioners will have complete security because revenue of the pension fund will be sufficient to cover expenditures, he said. The deficit of the health funds will narrow significantly, he added.

The government will eliminate tax preferences next year and end the practice of adding half of social contributions to the personal income tax base, but only for income up to HUF 202,000 a month, Matolcsy said. Revenue generated by the broader tax base for incomes over HUF 202,000 will temporarily be used to compensate lower-income earners who are worse off because of the elimination of the tax preferences, he added.

The technical details of eliminating these two elements of the tax system are still being worked out, and they will be finalized in October, he said. The government will only support a solution that leaves nobody worse off under the flat-rate tax system, he added.

The 2012 budget is based on a HUF 1,000bn fiscal improvement, up from the HUF 550bn improvement targeted in the structural reform plan announced in the spring, Matolcsy said. It targets a HUF 303bn fall in expenditures and HUF 450bn in extra revenue from tax increases, and there are still the HUF 250bn in stability reserves set aside this year, he added.

Hungary's main VAT rate will rise from 25% to 27%, but the other VAT rates will remain unchanged as will the products to which these rates apply, he said.

The 2012 budget is based on the assumption of 1.5% GDP growth, Matolcsy said. Growth could be bigger and the budget could still bear lower growth, but the government does not expect a recession, he added.

Matolcsy acknowledged there are risks, but said the government had planned very conservatively. The employment, consumption and investment projections in the budget, the European integration of Hungary industrial sector and the HUF 300bn in reserves make the 1.5% growth assumption realistic, in spite of the risks, he said.

Pensions will rise in line with the rate of inflation next year, Matolcsy said.

The 2012 budget allocates HUF 6.5bn for interest subsidies for the construction of homes or the purchase of new homes by families with two children, he said.