Hungary's government, working to reduce its budget deficit after reporting the European Union's widest shortfall last year, today lowered its forecast for the annual gap as tax revenue exceeds targets.
The government expects the shortfall to reach 6.7% of GDP, compared with the originally planned 6.8%, said Miklós Tátrai, a state secretary in the Finance Ministry. Revenue will be Ft 80 billion ($432 million) higher than planned, with spending Ft 30 billion below its goal. Prime Minister Ferenc Gyurcsány has raised taxes and cut subsidies to reduce the shortfall, after missing government targets every year since 2001. The government aims to lower the deficit to 3.2% of gross domestic product by 2009 from about 9.6% last year. „The beneficial budget processes we witnessed in the past few months are continuing,” Tátrai told a press conference in Budapest today. „This is primarily the result of higher tax revenue. Personal and corporate income taxes, as well as the value-added tax and other contributions are performing above target.”
The new forecasts don't reflect all the possible changes to the budget deficit outcome, as the government wants to remain cautious in planning, the ministry said in a statement distributed during the press conference. Lower interest payments will cut spending by Ft 30 billion, which the government will add to budget reserves, Tátrai said. Hungary was earlier forced to tap into the reserves when a new tax was found unconstitutional, cutting revenue by Ft 60 billion. A new version of the same tax will bring Ft 30 billion into the budget, according to the government. The cash-flow budget deficit, which is different from the figure used by the EU and is a snapshot of the government's accounts on a given day, will be Ft 20 billion higher than planned, now forecast at Ft 1.6 trillion.
An agreement to raise public sector salaries will push up the figure, without affecting the other measure, used to determine whether a nation is prepared to adopt the euro. The government also cut its forecast for the budget deficit in the Q1 to 3.1% of GDP from 3.4%. The March shortfall is estimated at Ft 373.1 billion, or 1.5% of GDP, compared with Ft 216.9 billion in February. (Bloomberg)