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UPDATE - Hungary general govt deficit in 2011 confirmed at 110% of modified target

Hungary had a cash flow-based general government deficit, excluding local councils, of HUF 1,734.4bn at the end of December or 110.0% of the modified full-year target, the National Economy Ministry said in a second reading of the data on Monday.

The figures were unchanged from the preliminary ones published on January 9.

The ministry said that the deficit was about 2.5 times the original target.

It noted several one-off items - adding up to HUF 1,114.6bn - that contributed to the overshoot, namely the purchase of shares of Hungarian oil and gas company MOL for HUF 498.6bn, a preliminary estimated HUF 250.0bn in VAT refunds made necessary by a decision of the European Court, a HUF 120.0bn capital raise in the state-owned Hungarian Development Bank (MFB), the takeover of HUF 50.0bn in debt from state-owned railway company MAV and the takeover of HUF 196.0bn in debt from county councils.

Excluding these one-off items, the deficit would have reached HUF 619.8bn, under the original target of HUF 687.4bn, the ministry said.

Including one-off items, the accrual-based general government is expected to show a surplus of HUF about HUF 976bn or 3.5% of GDP, the ministry said. Excluding one-off items, the cash flow-based data are confirmation the accrual-based deficit target of 2.94% of GDP will be met, it added.

For the full year, the central budget ran a HUF 1,718.3bn deficit and the social insurance funds were HUF 83.3bn in the red, but separate state funds had a HUF 67.2bn surplus.

General government revenue came to HUF 13,208.9bn for the year, against expenditures of HUF 14,943.3bn.

In December alone, the general government ran a HUF 486.5bn deficit. The central budget was HUF 422.1bn in the red, separate state funds had a HUF 11.4bn deficit and the shortfall was HUF 53.0bn for social insurance funds.

In a breakdown of full-year revenue and expenditures, the ministry said the National Pension Fund received HUF 363.4bn revenue from the Pension Reform and Debt Reduction Fund - into which assets of private pension fund members returning to the state pension pillar were placed, HUF 69.8bn under the modified target. The Pension Fund’s position was better than targeted in the course of the year and the smaller transfer was sufficient for it to keep the targeted balance for the full year, the ministry said.

Including the targeted HUF 95.6bn the central budget received from the Pension Reform and Debt Reduction Fund, the central government had 2011 revenue of HUF 459.0bn from the former private pension fund assets transferred to the state.

Revenue from the the so-called crisis taxes - extraordinary taxes levied on the telecom, the retail and the energy sectors for three years from 2010 - totalled HUF 171.9bn in 2011, exceeding the target by HUF 10.9bn or 6.8%, and exceeding the 2010 figure by HUF 20.2bn or 13.3%, the ministry said.

The extraordinary bank levy brought in HUF 186.5bn, just HUF 3.5bn or 0.3% less than targeted. Revenue from that tax, also introduced in 2010, was up HUF 4.2bn from 2010.

Net revenue from the personal income tax, at HUF 1,382.8bn last year, exceeded the respective annual target by 1.5%, but dropped HUF 385.1bn or by 21.8% from 2010. HUF 156bn of the decline resulted from the family allowances from the tax base, granted to an averege 810,082 individuals in the course of 2011, the ministry said. It expected a further 100,000 people to claim the allowance in their annual tax returns by the May 20 deadline.

Corporate tax revenue totalled HUF 316.6bn last year, HUF 28.6bn or 9.9% over the downward modified annual target, and HUF 6.8bn or 2.1bn less than in 2010. A smaller part of the higher than targeted revenue reflects better than expected profitability, the ministry said, attributing the remainder of the overshoot to technical reasons.

Including the HUF 250bn funded back to businesses as a result of a European Court decision in November and December combined, revenue from VAT, the largest single revenue item came in at HUF 2,219.5bn, down HUF 269.5bn or more than 10% from the target modified downward in the course of the year. Excluding the extraordinary HUF 250bn, net revenue from VAT would have risen 6.7% from 2010, the ministry said.

The government introduced a flat-rate personal income tax and family allowances after children from the tax base in 2011. It introduced a preferential 10% corporate tax on annual profits up to HUF 500m in the autumn of 2010.