July 2nd, 2014

“No talk” of debt procedure against Hungary, says economy minister

Economy Minister Mihaly Varga said in connection with a critical report published by the European Commission that there was “absolutely no talk” about launching an excessive deficit procedure (EDP) against the country.

In response to the commission’s criticism of the tax system, including sectoral taxes, Varga said: “Hungary has clearly stated that it has transformed its tax system, there is now a different system, and sectoral taxes play a part in this.”

In connection with the fostered jobs scheme, Varga said the government was committed to offering people work rather than benefits.

The EC said in a report published on Tuesday that Hungary was likely to need further fiscal consolidation efforts to avoid the re-opening of an EDP, due to the slow pace of the country’s debt reduction. “In particular, compliance with the debt reduction benchmark would likely require additional fiscal consolidation efforts, in order to avoid that an inadequate pace of debt reduction could trigger the re-opening of an excessive deficit procedure in spring 2015,” the report said. At the same time the commission acknowledged the recent pickup in economic growth, as newly installed car industry capacities were boosting exports and industrial output and domestic demand strengthened.

London-based analysts said the commission’s report may have a positive effect on the budget. Bank of America-Merrill Lynch said in a statement on Wednesday that the Commission’s suggestion of a possible launch of an EDP “does not look good, but in reality is positive”. This threat is the strongest incentive to keep Hungary’s budget in order, the bank said.

The opposition E-PM party alliance said the report signalled the end of the “ostensible economic miracle” and Fidesz’s propaganda bubble is starting to burst. Levente Papa, the party’s economic spokesman, said the report was a sign that Hungary had returned to where it started after several years and that now new austerity measures are needed to keep a fiscal balance.

The ruling Fidesz party said in a statement that the report from Brussels was “another go at putting pressure on the government to reduce the burden on banks and multinational companies.” It added that “to this, as always, the left is giving assistance with full force.”

The EC statement was released after a visit to Hungary by a delegation between June 24 and 27 to review recent economic developments and policy initiatives in the context of post-programme surveillance linked to a 2008-2010 programme.

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