Fiscal Council clears 2015 budget but calls for bigger reserves

Budapest (MTI) – Hungary’s Fiscal Council said on Monday that it cleared the government’s draft for the 2015 budget bill but added that greater reserves would be needed to safely meet the deficit target of 2.4 percent of GDP.

The Council said that the planned reduction of the exchange-rate-adjusted state debt ratio, to 75.4 percent of GDP at the end of 2015 from an expected 76.3 percent at the end of this year, could be met even if GDP will grow slightly less and the deficit will be slightly higher than projected in the draft.

The Council asked the government to quantify risks and re-assess whether the budget reserves, specifically, the planned 40 billion forints in the Country Protection Fund, are sufficient to manage those risks.

The 2.5 percent GDP growth assumption for 2015 can be met under favourable conditions in the Council’s view, but the Russia-Ukraine crisis and the slowdown in the global economy pose downward risks. The Council also named the projected inflow of 2007-2014 EU funding as well as the targeted large growth of consumption-related tax revenues among growth risks.

The Council’s opinion revealed that the draft budget contains spending cuts. The Council noted, however, that it was unable to evaluate some of the planned expenditure reductions in the absence of details of the measures on which such expenditure cuts will be based. They noted that the target for public education-related spending was low based on measures taken so far.

On the revenue side, the Council saw the main revenue risk at consumption taxes where the draft overestimates the excess VAT revenues from the whitening of the economy. Downward risks to inflation also could cut some types of budget revenue but this could be offset by higher consumption.

The Council recommended the government to prepare a mid-term programme, running to 2022 to cut state debt gradually, in line with the new EU criteria.

Source: http://mtva.hu/hu/hungary-matters