2009-12-02

On 30 November, the Hungarian parliament passed the budget act for 2010. To meet the requirements set by international financial institutions which have offered support to Budapest, the act provides for a deficit at the level of 3.8% of GDP. However, considering the overly optimistic budget goals set by the present government and the promises to adopt a less restrictive fiscal policy by Fidesz, which is the certain winner of next year’s parliamentary elections, this level is unlikely to be maintained.

According to the act, GDP will fall by 0.6%, the inflation rate will reach 3.9% and the budget deficit will be limited to 3.8% of GDP. This is not only the lowest forecasted budget deficit in Central Europe but also one of the lowest in the EU.
The budget fits in with the savings policy of the Gordon Bajnai government supported by the Socialists and Liberals, which has raised taxes and made a number of state expenditure cuts since April this year. However, some of the budget goals seem unrealistic; for example, Hungary’s central bank expects the budget deficit to reach 4.3% of GDP next year. This calculation is the effect of less optimistic forecasts regarding incomes from taxes and funds needed for the restructuring of state-owned companies.
The budget gap may also grow if the right-wing Fidesz, which is likely to form an independent government after the election in April – May 2010, keeps its promises regarding the change in economic policy. It can be concluded from the party leaders’ declarations that Fidesz wants to increase the budget deficit in order to stimulate economic growth. However, a possible realisation of such promises may cause a significant widening of the budget gap (to 7.5% of GDP), which will adversely affect the image of Budapest and strongly reduce the availability of funds from international financial institutions. <dab>
 

Permalink