If Fidesz is voted back to power in 2010, it will create a new budget, a new tax regime and a new labour policy as of July, said György Matolcsy, one of the key economic policy makers of Hungary’s main centre-right opposition party. The new government should also sign a new Stand-By Arrangement with the International Monetary Fund (IMF), he also told local newswire MTI in an interview on Thursday.
The former Minister of the Economy said the three main actions of Fidesz after taking power would be to create a new budget, a new tax system and a new employment policy that would enter into force on 1 July. As a consequence, the tax measures of the current Socialist-led minority government will be in force for no more than six months, he added.
He reiterated that Fidesz has three scenarios for the tax system: one proposing a radical reduction of personal income tax with a flat family rate; another which would decrease rates on the entire spectrum of taxes; and a third which would cut social-security and health-insurance contributions only for employers and employees alike.
Fidesz will consult all sides of economy before making a decision, Matolcsy added.
Regarding the new budget, Matolcsy said it would come clear of the real size of the deficit, but he did not wish to comment on possible means of managing it. He stressed, though that Fidesz does not plan to implement austerity measures, except in bureaucracy.
He noted that the 2010 Budget that has been recently passed by Parliament is in fact a “crisis budget", but instead of managing the crisis it would only deepen it.
It is already clear that the budget deficit will be 3-4 percentage points higher than the targeted 3.8% of GDP, Matolcsy said. He cited the central bank (NBH) staff projecting in its Inflation Report that the (ESA) gap is likely to be 4.3% of GDP. He also pointed out that based on the NBH’s assumptions, the quantified balance of accumulated debts and liabilities may be around 2.7% of GDP. Fidesz expects the gap at 4.5% and foresees that state-owned enterprises such as the railway company would need debt consolidation amounting to 3% of GDP.
Matolcsy said there are other downside risks to next year’s budget than the 7.5% deficit it projects, including a larger-than-expected contraction in consumption, unemployment and inferior lending to households that could lead to smaller tax revenues.
A drop in investments will eat into tax revenues and lower-than-forecasted inflation will also decrease this type of income for the budget next year, he added.
Even without risks, some HUF 1,200-1,300 billion is missing from the 2010 budget that the new government cannot settle for, Matolcsy said.
Fidesz will not want to continue to present tight fiscal policy, as it will rather strive to boost economic growth, he added.
To a question where Fidesz thinks will find the funds for tax reductions, Matolcsy said the source of these measurs would be the expansion of the domestic market, increasing exports and a cut to red tape.
He also said the new government should sign a new loan agreement with the IMF, stepping out of the current deal that offers the worst possible conditions and switch to anew one that offers better terms.
“We need a stand-by arrangement that will ease obtaining credit from the market and offsets the impact of bad news such as the actual size of the deficit," Matolcsy said.
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