BUDAPEST—Hungary's economy minister slammed the European Union Wednesday for forcing a significant toughening of the country's 2013 budget because of doubts that earlier deficit targets can be met.
Gyorgy Matolcsy outlined measures to raise a further $1.7 billion for 2013 through taxes and savings to persuade the EU that Hungary can bring its deficit below 3% of gross domestic product next year.
Failing to do so would jeopardize access to a much-needed 1 trillion forints ($4.70 billion) in EU development funds in 2013.
The plan comes just two weeks after Mr. Matolcsy announced deficit reductions totaling $1.9 billion.
The EU reckoned the earlier plan would produce a deficit of 3.7% to 3.9% of GDP next year, well above the 2.7% target.
The country would face penalties and funding cuts if it fails to convince the EU that next year's gap will be below the required 3% threshold.
Coming up with a credible plan could also help Hungary in its almost yearlong wrangle with the International Monetary Fund and the EU over the terms of a proposed €12 billion to €15 billion ($15.67 billion to $19.58 billion) aid package.
Hungary wants the funds as a "safety net" but hopes to avoid tough conditions from a IMF/EU deal.
"We won't risk losing cohesion funds based on a professionally unfounded and incorrect projection," Mr. Matolcsy said.
He accused the EU of having double standards for allowing other member states to widen their deficits to well beyond the 3% mark.
The European Commission said Wednesday it will "carefully analyze these measures and present our assessment as part of our Autumn Forecast on Nov. 7."
The new plan aims to raise 367 billion forints, or around 1.2% of Hungary's GDP, by backtracking on a government promise to reduce an emergency bank levy, increasing a financial transactions tax and imposing a new tax on utilities, among other measures.
The government's reversal on halving the bank levy—which was initially imposed as a crisis measure—immediately drew fire from Hungary's banking association, which warned that hitting banks would have an adverse economic and social impact while limiting growth.
Mr. Matolcsy said the EU's "professionally unfounded projections" left him no choice but to reverse the previous agreement.
He insisted that the budget adjustment is twice the amount needed to keep the deficit in check but said that Hungary wanted to be sure the EU wouldn't impose penalties.
Analysts said the new measures should be enough to keep the deficit below 3% but voiced concern about the impact on growth, which Hungary now forecasts at 0.9% of GDP in 2013.
"I doubt they would have fully evaluated the macroeconomic effects," MKB Bank analyst Zsolt Kondrat said.
"In general, the package brings the deficit target in reachable distance next year but further worsens growth opportunities."
There is currently no date fixed for the second round of IMF/EU negotiations following a fact-finding trip to Budapest in July.
Meanwhile, a recent rally by the Hungarian forint and government bonds could soon come to an end amid investor doubts over the timing of an IMF/EU agreement and because of the country's poor economic fundamentals, strategists said.
wsj.com
Gyorgy Matolcsy outlined measures to raise a further $1.7 billion for 2013 through taxes and savings to persuade the EU that Hungary can bring its deficit below 3% of gross domestic product next year.
Failing to do so would jeopardize access to a much-needed 1 trillion forints ($4.70 billion) in EU development funds in 2013.
The plan comes just two weeks after Mr. Matolcsy announced deficit reductions totaling $1.9 billion.
The EU reckoned the earlier plan would produce a deficit of 3.7% to 3.9% of GDP next year, well above the 2.7% target.
The country would face penalties and funding cuts if it fails to convince the EU that next year's gap will be below the required 3% threshold.
Coming up with a credible plan could also help Hungary in its almost yearlong wrangle with the International Monetary Fund and the EU over the terms of a proposed €12 billion to €15 billion ($15.67 billion to $19.58 billion) aid package.
Hungary wants the funds as a "safety net" but hopes to avoid tough conditions from a IMF/EU deal.
"We won't risk losing cohesion funds based on a professionally unfounded and incorrect projection," Mr. Matolcsy said.
He accused the EU of having double standards for allowing other member states to widen their deficits to well beyond the 3% mark.
The European Commission said Wednesday it will "carefully analyze these measures and present our assessment as part of our Autumn Forecast on Nov. 7."
The new plan aims to raise 367 billion forints, or around 1.2% of Hungary's GDP, by backtracking on a government promise to reduce an emergency bank levy, increasing a financial transactions tax and imposing a new tax on utilities, among other measures.
The government's reversal on halving the bank levy—which was initially imposed as a crisis measure—immediately drew fire from Hungary's banking association, which warned that hitting banks would have an adverse economic and social impact while limiting growth.
Mr. Matolcsy said the EU's "professionally unfounded projections" left him no choice but to reverse the previous agreement.
He insisted that the budget adjustment is twice the amount needed to keep the deficit in check but said that Hungary wanted to be sure the EU wouldn't impose penalties.
Analysts said the new measures should be enough to keep the deficit below 3% but voiced concern about the impact on growth, which Hungary now forecasts at 0.9% of GDP in 2013.
"I doubt they would have fully evaluated the macroeconomic effects," MKB Bank analyst Zsolt Kondrat said.
"In general, the package brings the deficit target in reachable distance next year but further worsens growth opportunities."
There is currently no date fixed for the second round of IMF/EU negotiations following a fact-finding trip to Budapest in July.
Meanwhile, a recent rally by the Hungarian forint and government bonds could soon come to an end amid investor doubts over the timing of an IMF/EU agreement and because of the country's poor economic fundamentals, strategists said.
wsj.com
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