- Title: HUNGARY: Budapest reacts to government's debt crisis proposals
- Date: 19th November 2010
- Summary: (SOUNDBITE) (Hungarian) ANALYST, PETER KREKO, SAYING: "It's an obvious success of the government that by using its political scope it has managed to extend its financial, budgetary scope. But they were only able to do this in a way that meant they also passed measures that are risky from a constitutional point of view and from the investors point of view." PEOPLE WALKING PAST BUREAU DE CHANGE SCREEN SHOWING EXCHANGE RATES (SOUNDBITE) (Hungarian) ANALYST, PETER KREKO, SAYING: "Regarding the medium and long-term success of the government, the main question is whether with these new economic policies will be able to create real economic growth and whether they will be able to ignite a robust economic growth with the Hungarian economic players in opposition to the multinationals and foreign investors." VARIOUS OF BUDGET BRIEFCASE OF FORMER HUNGARIAN FINANCE MINISTERS ECONOMIC MINISTRY REPRESENTATIVE TELLING CEO OF AFRIKA HOLDING COMPANY, SANDOR BALOGH, THAT THE COMPANY WON THE BRIEFCASE AT ONLINE AUCTION BRIEFCASE ON TABLE / MINISTRY REPRESENTATIVE HANDING OVER BRIEFCASE TO BALOGH PHOTOGRAPHER TAKING PHOTO (SOUNDBITE) (Hungarian) CEO OF AFRIKA HOLDING COMPANY, SANDOR BALOGH, SAYING: "Every economic measure that helps small businesses and locals and diverts the multinationals or cartels is a good direction to go in." PEOPLE WALKING PAST POSTCARD STAND IN CITY CENTRE
- Embargoed: 4th December 2010 12:00
- Keywords:
- Location: Hungary
- City:
- Country: Hungary
- Topics: Economic News,Domestic Politics
- Reuters ID: LVAB42BXEKZ8CUKLE76KX6ZO1RD
- Aspect Ratio:
- Story Text: Prime Minister Orban's 'bold but risky' measures to boost the Hungarian economy are met with concern by the IMF and investors, but hailed by ordinary Hungarians.
Hungary has turned its back on austerity and is gambling on economic growth to get its finances back in order.
As parliament debates the country's budget, which is expected to be announced at the beginning of December, Prime Minister Viktor Orban plans to use income tax cuts to boost demand and get Hungary's budget deficit under 3 percent.
"With the 2011 budget we Hungarians will curb and halt a rise in state debt. We'll do so as we create the 2011 budget with a deficit of below 3 percent of GDP," Orban said in a parliament address on Monday (November 15) According to Orban, Hungary's national debt will fall below 70 percent of GDP by 2014-2015 if the economy grows at a rate of more than 3 percent and it gets its budget deficit below 3 percent of GDP in coming years.
Orban's centre-right Fidesz government plans to cut income taxes from 2011 to boost domestic demand in what it believes is the long-term solution.
"This is the policy we wish to continue after 2011 as well. We think that with the growth of the economy we will raise GDP, we will keep the deficit below 3 percent in a permanent way and we will carry out structural reforms," Orban said.
Hungary's tax changes have worried investors looking for spending reform but have met with a warm reception from ordinary citizens who are expected to benefit.
The new flat-rate of 16 percent personal income tax rate is expected to be launched in January and will be combined with generous tax breaks for parents, especially families with three or more children -- a radical departure from the austerity drives undertaken by many European governments.
"It helps us a lot financially because we have four children and the fact that after three children we can write off 33,000 forints [approx. 120 euros] each month will bring in a lot of money. I haven't yet calculated it exactly though," Budapest resident Anna Toth told Reuters TV.
"We wont be able to fully use the tax benefits even though I plan to go back to part-time work next year but the fact that we will not have to pay any tax at all in comparison to what we pay now is really fantastic," she added.
Fidesz hopes the tax cuts will boost domestic demand and tax compliance.
But some Hungarians fear the new system favours the rich.
"If the tax benefit is even higher than I am glad but I cannot really use it. All sorts of tax benefits only favour those with high incomes, those who are rich. The small people cannot really do much with tax benefits," Budapest resident Bela Hajdu, who has six children but is not earning enough money to be able to use the benefits, said.
In its 2011 budget, the government is also planning to meet European Union requirements via the retention of a series of special taxes on banks and other key sectors of the economy beyond 2012 in a move that would plug holes in the budget but hurt investor sentiment.
Companies affected by the new taxes have said they may reduce investments, while private pension funds called the measure which halts the transfer of pension payments to private funds for 14 months a "covert nationalisation" attempt.
The European Commission said it would examine the new Hungarian telecoms tax to see if it complies with EU rules.
Analysts say Orban's main motive for moves which have included curbing the powers of the Constitutional Court, are intended to create more freedom of movement for a new economic policy.
"Regarding the medium and long-term success of the government, the main question is whether with these new economic policies will be able to create real economic growth and whether they will be able to ignite a robust economic growth with the Hungarian economic players in opposition to the multinationals and foreign investors," analyst Peter Kreko told Reuters.
For the time being Orban's measures seem popular with the many Hungarians who welcome his stand against the IMF, multinationals and foreign investors.
The Economy Ministry even decided to selling off a briefcase used by its predecessor to carry budget papers, as a way of distancing itself symbolically from past fiscal policies.
Potential buyers bid for the buffalo hide briefcase on auction website.
The Afrika Holding company won the auction and took possession of the briefcase on Wednesday (November 17) and company manager Sandor Balogh said the government's budgetry moves would be good for small to medium size businesses.
"Every economic measure that helps small businesses and locals and diverts the multinationals or cartels is a good direction to go in," Balogh said.
Hungary's central bank and the International Monetary Fund have criticised Orban's unorthodox government measures to fix the budgetwarning of risks to fiscal sustainability, calling the measures 'bold but risky."
The government's plans include cuts in personal income tax, special taxes on the energy, telecoms and retail sectors as well as measures which pension industry figures have warned would add up to renationalisation of a successfully reformed system. - Copyright Holder: REUTERS
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