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Reform Alliance target would mean HUF 350 bln spending cut in 2009

  Achieving a HUF 1,300 billion cut in state spending by the end of 2011, as proposed by the Reform Alliance, a group of independent experts established by business leaders to work out a recovery plan for Hungary, would require at least a HUF 350 billion in expenditures in 2009 and a HUF 450-500 billion drop in 2010, Éva Palócz, the head of think tank Kopint-Tárki and a participant in the work of the Reform Alliance, said at a meeting of the Economy and Social Council.

The Reform Alliance proposed cutting state spending, including social spending, to bring state expenditures as a proportion of GDP to 42% from over 50% currently.

In order to achieve this goal, the Hungarian economy has to achieve its GDP growth potential of an annual 2%, and it has to exceed this potential by 1.5 percentage points from 2013, Ms Palócz said.

Attila Chikan, a former economy minister who also participated in the work of the Reform Alliance, said sate spending at current levels is unsustainable, but just as big a problem is Hungary’s level of productivity, which is just half that of the average in Western Europe.

Now is the time for a genuine economic incentive and development program, Chikan said. More must also be done to improve the situation of SMEs, he added.

Chikan said a government with only a ten-month mandate was incapable of getting to the roots of the problems, referring to Hungary’s new government, which started to be formed on Tuesday with the swearing in of the new prime minister.

This does not mean an opposing stand ought to be taken against the new government from the start, but it does show, again, a case of political rationale beating out economic sensibility, he added.

Assessing the former government, László Parragh, who heads the Hungarian Chamber of Industry and Trade and was a member of the Reform Alliance, said a €20 billion loan from the IMF, EU and World Bank was the only positive element during the period.

Speaking about the tasks of the new government, Parragh said it would be a mistake only to strive to balance the budget. “Somehow, consumption also has to be generated.” (MTI-Econews)