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Hungary budget rule hopes fade as parties disagree

Hungary’s government and opposition remain at odds over how to hold down budget deficits over the long term, and agreement on fiscal rules is not imminent despite almost a year of negotiations.

“What I can say as good news, is that we will have a 17th round of negotiations ... but a final agreement is still waiting to be reached,” Socialist Finance Minister János Veres told a conference on public finances on Tuesday. The government drew up rules last year on making deficit cuts sustainable but the main right of centre opposition party,  Fidesz, objects to several points in the plan and stances do not seem to have moved closer.

Foreign investors have watched the talks closely because Hungary’s deficits have surged in election years, ballooning to 9.2% of gross domestic product  in 2006 when the Socialists were re-elected. The deficit is expected to drop to 4% of GDP this year but there are fears that spending will rise again ahead of 2010, when the next parliamentary elections are due.

The ruling Socialist party is preparing to govern as a minority from May after its junior coalition party, the liberal Free Democrats, said they would quit the coalition at the end of this month because structural reforms had stalled. It will be difficult for the Socialists to secure backing in parliament to pass any new legislation and the fiscal rules require some modifications that need at least two thirds of the vote for approval. The government’s planned rules would ensure that debt cannot increase in real terms; set a primary surplus requirement; and aim to make it harder to loosen the budget ahead of elections. The government wants to amend the constitution and pass a law which would say the budget must have a surplus at the primary balance level, excluding debt service costs. It also wants to set up a budget office which would monitor budget planning and implementation, and aims to tighten rules on local government borrowing which it says rises to 0.7-0.8 percentage points of gross domestic product in election years.

 
LACK OF AGREEMENT
Veres said that during the talks the parties did not exclude the possibility of a deal and he hoped it could still be reached. The government wanted to pass the legislation this spring. But former Fidesz finance minister Mihály Varga, who is now the opposition party’s leading economic expert, told the same conference, that Fidesz instead proposed limiting nominal growth in spending and believes the whole system of local government financing should be renewed. Varga said government spending must be reduced because the fiscal adjustment program carried out by the Socialists since 2006 has mainly relied on boosting revenues. “You cannot evade a review of government spending,” Varga said. (Reuters)