PM: Hungary to impose tough budget controls

Parliament

Hungary, after years of soaring budget deficits, plans to revise its constitution to impose legally binding limits on government spending plans, says Ferenc Gyurcsány, the prime minister.

The draconian legislation, which would be the toughest of its kind in Europe, would be enacted next spring in an attempt to break a tradition of pre-election spending sprees that have earned Hungary the biggest budget deficits in the European Union, including 9.2% of GDP last year.

Gyurcsány told the Financial Times on Monday that legislation published at the weekend was required to ensure the country, now in the throes of a painful economic restructuring, did not stray again from the rules of budgetary discipline. Asked why politicians could not be trusted to run sound budgets without legal controls, the prime minister replied: “Sometimes we have to protect ourselves from ourselves.” Gyurcsány is presiding over Hungary’s biggest budget cuts in a decade, with the deficit on schedule to fall from last year’s 9.2% to 6.4% in 2007, with a further cut planned for next year to 4.1%.

Under the proposed legislation, parliament would amend the constitution to require governments to run sustainable budgets with a primary surplus - that is a surplus of revenues over expenditures, excluding debt service costs. Budgets would also have to allow for regular annual reductions in the public debt, which currently stands at 67-68% of GDP. A budget supervision office would be established under a director with a 12-year mandate to guard against political interference. Fidesz, the main opposition party, has given some support to the plan although it has reservations about some parts, such as its application to local authorities. Gyurcsány said: “We would like to strengthen Hungarian budgetary policy. There is clear evidence that, every four years from the beginning of the 1990s, the Hungarian budget has been softened up. We need to give a very strong response to this phenomenon.”

Economists say that, while Hungary is not the first country to consider legally binding controls on the budget, its proposals are particularly severe. Gabriel Stein, a director of Lombard Street Research, a London research company, said legal limits were not necessarily effective. “Once politicians are constrained by law from doing something one way, they find another way of doing it.” (news.moneycentral.msn)

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