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UPDATE - Hungary ESA general government deficit 4.1% of GDP in Q2

Hungary had a preliminary general government deficit of HUF 288bn in the second quarter of 2011, equivalent to 4.1% of the period's GDP, the Central Statistics Office (KSH) said on Monday.

The deficit dropped from HUF 435bn, or 6.5% of GDP, in Q2 2010.

In the first half of 2011, Hungary still registered a HUF 1,940bn general government surplus, including revenue from the transfer of pension assets booked for first quarter.

Excluding the pension assets transfer, the first-half position translated into an ESA deficit of HUF 769.3bn, or 5.5%, of the period's GDP, up HUF 25.4bn from the deficit in H1 2010 in nominal terms, but 0.1 percentage point less in terms of GDP.

This year's income tax changes cut revenues significantly, but the fall was mostly compensated by the rechanneled and rising social contributions and extraordinary sectorial taxes, the figures show. On the spending side, interest rate expenditure fell as did investment spending.

Second-quarter general government revenue rose 2.0% from a year earlier to HUF 2,963bn, mainly boosted by a big, 18.2% rise of revenue from social-security contributions as all pension contribution have gone into the state system starting last November, and a 0.5%-point rise of pension contribution as of January.

Revenue from income taxes dropped, however, 21.6% yr/yr to HUF in Q2 due to the tax changes -- a lower flat personal income tax rate and a lower 10% corporate tax rate for profits below HUF 500m -- introduced this year. KSH attributed the 1.5% rise in taxes on production and imports to the extraordinary sectorial or "crisis taxes".

Q2 revenue from VAT fell 3.0%.

Expenditure fell 2.7% yr/yr to HUF 3,251bn in Q2, as investment spending or gross fixed capital formation fell 12.0% and other expenditure fell 11.2% yr/yr. Second-quarter interest expenditure dropped 1.9% yr/yr to HUF 267bn.

General government spending on wages rose 1.5% and other current expenditure rose 1.7% yr/yr in Q2. Cash social contribution rose 2.2%. First-half general government revenue totaled HUF 8,464bn, including the pension assets transfer and was HUF 5,754bn, excluding the transfer.

Excluding the transfer, H1 revenue was down 0.9% yr/yr, mainly due to a HUF 226bn, or 21.4% drop of revenue from income taxes to HUF 833bn, due to the tax changes. First-half revenue from VAT fell 4.2% to HUF 1,136bn, but revenue from other types of taxes, such as excise duty or the extraordinary sectorial taxes were significantly higher, KSH said. The jump of capital tax proceeds, to HUF 67.5bn in H1 this year from HUF 5.3bn a year earlier, reflected the extraordinary bank levy, the office said.

First-half revenue from social security contributions rose HUF 240bn, or 15.3%, to HUF 1,812bn.

General government spending in the first half of 2011 dropped 0.4% from H1 2010 to HUF 6,524bn, as spending on wages fell 5.6%, to HUF 1,383bn, and investment spending fell 5.6% to HUF 298bn. Other current government expenditure rose 1.7% to HUF 1,029bn.

Interest rate expenditure was down 0.5% at HUF 560bn in H1.

The general government registered a HUF 2,229bn surplus in Q1 this year as a result of booking as government sector revenue in the system of national accounts HUF 2,677.7bn of the private pension fund assets transferred to the state on behalf of former members. The figure does not include the real yields and membership supplements due back to former members. Another HUF 32bn in revenue related to the transfer was booked as other revenue in H1, KSH said