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Hungary says public sector wage increases hinge on deficit

Hungary's government said future wage increases for public employees will hinge on reducing the budget deficit as much as planned.

The deficit as calculated by European Union standards will be unaffected by the government's February 19 agreement with public workers to increase wages by 6.65% this year, the Finance Ministry said in an e-mailed statement today. Prime Minister Ferenc Gyurcsány is working to reduce the budget deficit after running up the EU's widest shortfall last year. The agreement is in line with a deficit-reduction program approved by the 25-nation bloc last year, the government said. „The agreement itself is in line with the,” budget plan, the ministry's statement said. „Only if the projected expenditure outcome is lower than planned” does the „government see room” for further „wage increases. The wage agreement came hours before a strike deadline set by the country's 800,000 public workers in health care, education, administration, social affairs and cultural institutions. Trade unions and business leaders on January 30 agreed to a recommendation to raise wages between 5.5% and 8%, averting labor stoppages. This year's deficit forecast remains unchanged, as the agreement redistributes bonuses without increasing base salaries, the ministry said. Instead of getting a full month's extra payment in January 2007, employees will now receive half of that amount in the second half of the year. From 2008, the bonus will be paid in monthly installments over the course of the year. As the bonuses would be accounted by EU standards for the year in which they are earned, bringing the actual payments forward the deficit will leave the deficit unchanged, according to the statement. Still, the change will affect wage statistics for each year. A higher increase will automatically mean higher pensions, raising government expenditures by 0.1% of GDP, the ministry said. (Bloomberg)