Hungary EcoMin Matolcsy summoned for extraordinary hearing over budget

The fiscal committee will hold an extraordinary meeting at 10:00 CET next Friday. According to the document of that session available on the Parliament’s website, the only point on the agenda is the hearing of National Economy Minister György Matolcsy. The subject of his hearing will be the situation and assessment of the

László Nyikos, chairman of the fiscal council and an MP of the far-right Jobbik party, said last week it would be time to hear whether Matolcsy believes the 2012 budget targets are attainable and if he thinks a supplementary budget should be created or not.

The opposition MP came with this idea when Hungary’s forint depreciated to record lows against the euro and the country risk skyrocketed last week.

Warning signs

So the subject of the hearing is likely to be this year’s budget. Árpád Kovács, the new head of the Fiscal Council, told Portfolio.hu in an interview that some additional fiscal adjustments may be necessary during the year because “you need to constantly adapt to the changes of the world."

According to the latest analysis of the Fiscal Responsibility Institution (KFIB), there is a HUF 400 billion hole in the 2012 budget.

According to the risk analysis presented last year, Hungary’s adjustment need is around 1.3% of GDP this year, i.e. nearly HUF 400 bn. In comparison, the government announced a HUF 320 bn package. But a great part of this consists of one-off measures, such as the freezing of reserves and the redirection of pension contributions. The latter move erodes the cabinet’s credibility and trustworthiness and looks very bad with regard to the rule of law, said former finance minister Péter Oszkó of the KFIB last December.

Balázs Romhányi, head of the KFIB, noted that if the HUF 320 bn package indeed meant a HUF 320 bn adjustment, then the cabinet would need “only" HUF 80 bn to meet the deficit target. He added that there could be a need for further budget adjustment during the year.

He pointed out that the latest amendments to the budget plan did not include changing tax revenue targets. The problem is not that the revenue targets are incorrect now, but also that in the first few months of the year no one will know how the balance compares with the objectives. There will be nothing to compare the fresh budget figures to, he added.

What went down in 2011?

When assessing the 2011 budget processes, Matolcsy’s ministry emphasised a number of times that the deficit target will be achieved. Hungary posted a HUF 1,734 bn budget shortfall in 2011 (on a cash flow basis).

But the message somehow did not go through to Brussels. The European Commission announced on Wednesday that it will move the Excessive Deficit Procedure (EDP) to the next stage for the country failed to do enough for a sustainable reduction of the deficit.

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