The Associated Press March 1, 2011, 1:34PM ET

Hungary reveals plans to cut state debt, deficit

Hungary's economy minister on Tuesday revealed plans to substantially cut state debt and budget deficit levels by 2014, but more details of the reforms will be known only in the coming months.

Hungary's state budget gap will fall from a planned 2.9 percent of GDP this year to 1.9 percent in 2014, while state debt will be reduced from 82 percent of GDP to near 65 percent, Economy Minister Gyorgy Matolcsy said.

Matolcsy says the reforms' main objectives -- from expanding the work force to changes in education, disability pensions and unemployment benefits -- were meant to cut Hungary's state debt level to around 50 percent of GDP by 2018.

"We have decided to introduce structural reforms in seven areas to achieve an end to wastefulness and the further accumulation of debts," Matolcsy said at the presentation of the plans, collectively known as the Kalman Szell plan -- after a politician credited with introducing wide ranging budget reforms in the 1870s.

Initial market reaction to the announcements was negative, with both the Hungarian currency, the forint, and the benchmark index of the Budapest Stock Exchange losing ground.

"The announced package contains softer measures than expected by the markets," said a report from Equilor Investment Ltd. in Budapest

Analysts said, however, that confidence in the measures could grow once more exact details are known, but in key areas the actual steps won't being to be implemented for months.

"These details will have to be supplied within the next months to gain credence," said a note from Gabor Ambrus at 4Cast in London. "The fact that concrete targets and amounts have been mentioned and the fact that the right areas for changes have been singled out are clearly positive."

Ambrus also highlighted that the "package focuses mainly on the expenditure side of the budget."

Matolcsy, at the same time, said that a special tax on the banking sector introduced in 2010 -- and expected to be cut by 50 percent next year -- will instead be applied in full, costing banks an additional 90 billion forints ($455 million, euro330 million) in 2012.

Extra revenues are also expected from an electronic road toll system and by scrapping plans to lower the tax rate for large companies.


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