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Hungary gov’t plans public sector wage, central budget spending freeze in 2012

Hungary's government will freeze public sector wages and central budget spending on goods and services in 2012, the country's updated convergence program published on Friday shows.

An outline of the main objectives of the 2012 budget in the updated program shows spending on goods and services by local governments will be allowed to rise at the estimated rate of inflation.

Public sector wages will be frozen except for employees with low salaries, who will receive compensation for tax changes introduced at the start of 2010. Changes to the tax system benefitted most Hungarians but left many low-earners worse off.

The budget aims to cut price subsidies, including a significant cut of drug subsidies, reduce spending on public transport by boosting efficiency, and restructure administration at the local level to achieve economy of scale.

There will be no rise in social transfers and family support.

Already announced measures expected to reduce spending include a restructuring of disability benefits and labor market benefits.

Pensions will keep their real value supported by indexation rules, according to the updated program.

Higher excise tax on tobacco products and a transformed product fee are expected to generate additional revenue.

The convergence program assumes a nearly one percentage point-of-GDP cut in current operating expenditures of the public sector over 2011, while revenue from tax and contributions will drop "only a negligible extent".