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Hungary Prime Minister: Spending cuts are coming

The Hungarian government will deliver as promised its long-term fiscal revamp, which will include spending cuts, to strengthen its credibility in financial markets, Hungarian Prime Minister Viktor Orbán was quoted a saying by Dow Jones Newswires.

It is also committed to reducing public debt and boosting economic growth by improving competitiveness, Orbán added.

“Financial discipline is important. When we restore financial discipline, it's important to reduce the level of redistribution" of budget revenues as a percentage of gross domestic product, Orbán was quoted in an interview with Dow Jones Newswires and The Wall Street Journal. “And this year, that will be proved, we are reducing that. So I think that, structurally, the budget is going in the right direction,” Orbán added.

The revamp, which the cabinet will discuss by Feb. 15 based on the Economy Ministry's proposal, will involve the pension system, reduce unemployment benefits, drug subsidies and reform the costly public-transport system, Dow Jones quoted Orbán.

“We have to make it clear that nobody can retire without reaching the age limit. Then that the public-pension fund cannot pay out more pensions than it collects (from pension contributions),” Orbán said.

The government also wants to reduce in the second half of the year the availability period of the unemployment benefit and provide “at least” public works at the same time in the areas of Hungary where jobs are scarce, Orbán said.

Hungary broke with the International Monetary Fund in the summer, shortly after the Orbán-led Fidesz party won a general election by a landslide with a pledge of no further austerity measures for the public, Dow Jones recalled. Hungary has been able to finance itself from financial markets since then, a major success for the country, Orbán said.

Hungary plans to reduce its public debt, which is the highest of Central and Eastern European countries, to 73-74% of GDP in the first half of this year, from levels around 80% at present. It will do so mostly by canceling the government securities returned to state coffers by Hungarians returning to the state pension scheme, Orbán said.

“My personal initiative is that we can defend the Hungarian people from indebtedness with very strong public financing regulations (to be included) in the new constitution so that when the debt level reaches a certain level automatic measures can be applied just like in Poland and in Germany,” Orbán said.

Orbán wants to pay back the unspent part of the IMF support money currently in reserves at the central bank to reduce the country's indebtedness further.

To meet its budget-deficit goals, approved by the previous government with the IMF and the EU, the Orbán government resorted to some controversial economic measures, Dow Jones said.

“It wouldn't have been possible to go back to the markets saying that the budget deficit is, let's say, 7% and not 3.8% of GDP. I had to force the Hungarian economy to produce the 3.8%, which wasn't reasonable for the country but I had to accept it because I inherited it,” Orbán said.

The steps included the levying of extraordinary taxes on banks, telecommunications, retail and energy companies to raise additional budget revenues and the de facto nationalization of private pension funds. The affected companies have appealed to the European Union as well as to the government against the measures, Dow Jones recalled.

“They have a legitimate request that after three years we have to phase them out and I will try to do my best. I hope we will be able to phase them out if we run the country successfully,” Dow Jones quoted Orbán as saying.

Orbán regards 3% of GDP as the appropriate level of the budget deficit for this year. “I would not like to reduce the budget deficit lower than 3p% (of GDP). Three percent is good but we should be very cautious how we reduce it because the primary balance is already positive (in a surplus),” Orbán said.

The primary balance is the budget deficit excluding debt payment obligations.

“We have to take into consideration that growth must be maintained. I am not in favor of boosting the growth rate by creating a higher budget deficit, I don't like that. But to keep the budget deficit at a certain level and then generate growth is what I like,” Orbán told Dow Jones. (MTI Econews)