The European Union cut its forecast for Hungary’s budget deficit after the Cabinet approved new taxes, boosting the country’s chances of unfreezing development aid the EU threatened to block over fiscal concerns.
Hungary is on track to meet its 2012 deficit target of 2.5 percent of gross domestic product and the gap may widen to 2.9 percent, compared with a previous 3.7 percent forecast, the European Commission said in its Spring Forecast, published today. The government targets a 2.2 percent shortfall in 2013.
Hungary approved taxes on banking, energy, telecommunications and insurance companies to allay European Union concern that its budget was unsustainable and to retain grants from the EU next year, which the bloc partially froze in March. Hungary is shifting levies toward consumption after the EU said the government relied on one-time measures to mask its budget gap.
Hungary’s 2012 euro convergence program “contains numerous additional saving measures including tax increases, the introduction of new taxes such as the financial transaction tax, and expenditure cuts, mainly in the area of budgetary chapters and drug subsidies, altogether with a gross budgetary improving effect of close to 2 percent of GDP,” the commission said.
The economy may contract 0.3 percent this year and expand 1 percent next year, the commission said. The government debt level may decline to 78.5 percent of GDP this year from 80.6 percent last year and drop to 78 percent in 2013, according to the EU’s executive.
Hungary is trying to end the EU’s excessive-deficit procedure, which it has been under since the country joined the bloc in 2004 for successive failures to meet budget targets in a sustainable way.
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