Thursday, April 21, 2005

More on the budget deficit in Hungary

The print edition of this weeks Budapest Times carries a couple of short notes that are relevant.

The first alludes to the comment from Deutsche Bank's Chief Economist, Norbert Walter, that a French NO in the coming referendum on the EU Constitution might bring about speculative attacks on currencies in the new EU member states - linked to in Currency crisis if France rejects European constitution The paper goes on to note that many analysts believe the Hungarian Forint is overvalued and is due for a correction by as much as 5%.

The likelihood of a correction is, I understand, also increased because the deficit is unlikely to be reduced any time soon. A second note at The Budapest Times reports that according to the State tax authority (APEH) there are increasing payment delays with VAT refunds - some €97.5 million is still being held from the third quarter of last year, and that is on top of a staggering €325 million, also from last year, that is to be paid out in the coming weeks.

I would further add to the above that tax rebates for employees, which in previous years have always been paid in January, are being held over until June – I don’t know how much this figure is but would imagine it too runs in € millions.

Speaking of tax, and further to my post of 11 April The online edition of The Budapest Times carries the following story on the EU Tax Commissioner - Kovács touts various EU tax increases

In an interview with the daily Népszabadság, Kovács said EU finance ministers had approved his plan to increase the excise tax on spirits by 24% in order to bring them to the 1993 value in real terms, an amendment which will not bring changes in Hungary since excise tax is higher here. Kovács has also recommended increasing VAT by 0.5%, raising petrol taxes by EUR 0.03, and levying EUR 10 per ticket on flights within the EU and EUR 30 on tickets flying outside the EU. The money will be earmarked to fund EUR 30 billion in EU development requirements at the United Nations.
24% on spirits!! - that's quite a hike in the minimum rate and will certainly mean higher prices for many.