Hungary uncovers truth behind HUF 250 bn stability reserve to Brussels

Portfolio.hu reported last Friday about the measures Hungary’s right-of-centre Fidesz government plans to implement in the 2011-15 period, as presented in the 85-page Convergence Programme. There are 35 main measures in the CP, which should be implemented in the seven reform areas listed in the Széll Kálmán Plan, i.e. the package of structural reform measures unveiled in early March.

What will be in the budget then?

The cabinet addresses budgetary processes in detail in the Convergence Programme sent to the European Commission on 15 April.

It reminds that the assets of the cc. three million private pension fund members who return to the state pillar will improve the budget balance by about 7% of GDP. “With this one-off effect of the asset transfer, the general government balance would show 4% surplus," it said.

However, in order to improve the efficiency of public transport the government decided that a considerable portion of state railway company MÁV and Budapest Transport Company (BKV) debt would be assumed by the budget. In addition, in order to ease the future burden, a decision was also adopted on the replacement of certain PPP projects. These one-off items reduce this year’s estimated surplus by 2% of GDP, so the 2011 general government balance could equal +2% of GDP. This is no novelty relative to a previous statement by the Economy Ministry.

“The extraordinary items will not change the key figures of the originally approved budget though: the Government intends to achieve the deficit target net of one-off impacts. This is why it established a stabilisation reserve of close to 1% of GDP (HUF 250 billion)," the document says. By this the government has practically admitted that the freezing of these funds is necessary because of tensions in the 2011 budget.A government resolution in February ordered freezing in the appropriations of budget chapters, obligatory contributions from certain budgetary agencies, the improvement of the balances of the extra-budgetary funds and reductions in consumer price subsidies, and also set an obligation to maintain the unspent appropriations, carried over from the previous year.

The truth revealed

“The stabilisation reserve created in order to manage any unfavourable development of the external environment could offset the risks, emerging primarily on the revenue side. As the 2010 tax revenues were lower than calculated in the course of budget planning, mainly because of the base effects, the tax and contribution revenues could be by 0.7% of GDP lower than set in the budget. The largest revenue loss could be recorded in the corporate profit tax also this year," the government said in the Convergence Programme.