Tuesday, June 28, 2005

Tax plans for Hungary

Meanwhile on the periphery of the Eurozone Ferenc Gyurcsány, Hungary’s Prime Minister, yesterday announced a sweeping programme of tax changes that, if implemented, would significantly reduce government revenues and put back the 2010 target date for Eurozone accession! For details see – Hungary’s tax cuts and also Table on impact of tax proposals

I agree with the statement that “more substantial spending cuts are needed to be implemented in order to fulfil the requirement of the public sector deficit not exceeding 3% of GDP by 2008. According to original plans, Hungary's public sector deficit would be cut to 2.4% of GDP, which has been criticised by analysts as a “close call". Now, with the impacts of the tax cuts, the number goes up to 2.8%, which is expected to further increase scepticism whether Hungary can meet its euro zone accession target by 2008.” See Hungary teeters on narrowing Eurozone edge

Far, far deeper cuts need to be made into the massive Soviet era legacy bureaucracy that is draining the Hungarian treasury dry, but clearly Ferenc Gyurcsány and the governing Socialist Party are unlikely to carry out any such reform as it would put many of their supporters jobs at risk.

Much is being made for and against these tax changes but it should not be forgotten that they are proposals. There is an election next May, and based on current opinion polls the opposition FIDESZ party Chairman János Áder, who I might add also proposes tax cuts, as per this interview, is probably correct, as he said in the parliamentary debate yesterday, that Gyurcsány and the Hungarian Socialist Party will not be in power this time next year. It is the fiscal spending plans of a FIDESZ led government that analysts should be paying attention to, not the bonanza proposed by Ferenc Gyurcsány; the latter is more a smoke and mirrors plan than anything really concrete.