Although Hungary’s budget is likely to come in higher than envisaged by the government, main opposition party Fidesz overdramatises the issue and the shortfall will not reach 7.5% as it claims unless it wants it to, 4Cast said on Thursday. Much of the current budget talk seems just preparation for the 2010 elections, it added.
The economic views of Fidesz have long been a “black hole" but it now seems we are getting more detail from the policy plans of the party which is slated to win a landslide victory on the 2010 parliamentary elections and take the leading role in the next Hungarian government, said Gábor Ambrus, the Sofia-based analyst of 4Cast.
The party's former EconMin, György Matolcsy outlined today a couple of proposals on Fidesz's tax plans, though not yet committing to either of the variants. Matolcsy foresees a state reform (this likely means the streamlining the public administration + anti corruption measures) that would create room for tax changes which would include: - the introduction of family taxation OR - broad based reduction of taxes OR - reduction of labour related taxes, mainly on the employer side.
The plans are hedged; Matolcsy said the implementation of these ideas is contingent on how the Hungarian budget looks like next year and how the global crisis evolves.
“We would add that the stance of the IMF will be equally crucial - this is probably the reason the Fidesz plans are conditional - easy to back track without taking the blame for it," Ambrus said.
Regarding the 2010 budget outlook, Fidesz chief Viktor Orbán repeated today earlier comments by former Fidesz Finance Minister Mihály Varga that Fidesz expects a budget deficit of 7.3-7.5% of GDP, around twice the current official target.
“Our view is that the 2010 budget outlook does not warrant such an overshooting compared with the 3.8% pledge the incumbent government made to the IMF. Some overshooting is indeed likely, but without major changes to the spending / revenue structure we do not see the 2010 deficit higher than 4.5-5.0% of GDP," Ambrus said.
The 7%+ budget gap Fidesz foresees “implies some of the tax reduction plans put in place and/or scrapping some of the revenue improving measures of the Bajnai government and/or moving some expenditures items from 2011 forward (this, for instance, could imply an unexpectedly strong capital increase for the state railways or the Budapest transport company- kind of bringing future costs forward) with the secondary aim of putting the blame of the 2010 budget slippage on the Bajnai government."
Ambrus noted that the Hungarian budget picture is “not rosy indeed".
He expects this year’s deficit to exceed the target by 0.3-0.5% of GDP already “since the much-weaker-than-expected VAT-to-CPI pass-through and the softer-than-expected domestic demand have taken their toll on the revenue side."
“Yet, even assuming that this adverse macro backdrop extends (likely), taking into consideration the approved Socialist pet project amendments to the 2010 budget bill and the reduced buffers, including the NBH losses that will fall on the budget and risks of the transport company bail outs, we do not see the deficit accumulating to 7%+."
“The 2010 budget deficit will bypass the 7% mark in 2010 only if Fidesz deliberately makes it so," Ambrus said.
To this end he does not believe they will need the agreement of the IMF - and he does not see it likely either that they would get it “without launching significant structural reforms pointing well beyond changes in the tax system."
“If these are done, and done properly, markets would not mind a 7% gap. Without more details on these reforms, the talk of a 7%+ budget gap is just part of the election campaign."
Charting is displayed using TradingView's technology, a platform, where you can build advanced charts,
spot upcoming trends in the stock screener, and find inspiration in multiple trading ideas
