Bloomberg News

Hungary Wins Reprieve From Planned EU Aid Halt After Budget Cuts

June 22, 2012

The European Union scrapped a planned suspension of Hungary’s development aid after the government presented plans to replace one-off levies with permanent taxes to sustainably cut the budget deficit.

EU finance ministers, meeting in Luxembourg today, lifted the suspension of 495 million euros ($627 million) in Hungary’s 2013 cohesion funds. Hungary, the most indebted of the EU’s eastern members, escaped becoming the first country to have the aid tap turned off since the fund was set up in 1994.

Hungary, which wants to start talks on an International Monetary Fund-led loan next month, plans banking and telephone- call taxes to cut the budget deficit to 2.2 percent of gross domestic product in 2013 from a targeted 2.5 percent this year.

Prime Minister Viktor Orban, since his election in 2010, has relied on the nationalization of private pension fund savings and extraordinary taxes on the financial, energy, retail and telecommunication industries to plug budget holes.

The government forecasts 283 billion forint ($1.3 billion) in revenue from the bank transaction tax in 2013, on top of a 60 billion forint special levy on the financial industry which the Cabinet plans to scrap in 2014. Banks have rejected paying the two taxes simultaneously and have threatened to shift transactions abroad and renege on commitments made last year to boost lending and aid foreign-currency borrowers.

The economy shrank 0.7 percent from a year earlier in the first quarter, the first contraction in more than three years.

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net; Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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