Hungary will remain committed to its previously approved deficit target of below 3% of GDP, said Mihály Varga, the country’s chief aid negotiator, after the European Commission projected 3.4% budget shortfall both for 2013 and 2014 in its Winter Forecast.
“It is slowly becoming a tradition that we start every year" with the European Commission debating the government’s prognoses. He reminded that this debate was resolved in 2011 and 2012 by Hungary proving its own estimates were correct.
In this respect we should remember how exactly Hungary turned out to be right - by the implementation of several adjustment packages (and the 2011 budget was propped up by the nationalisation of private pension fund assets). In scope of the 2012 budget the government executed no less than six adjustment packages, three of which were needed to be added later when it became clear the original plans will not do. The 2013 budget comprises five packages of measures so far and in view of the EC’s prognoses it seems very likely that a sixth will follow in April.
We have the same situation now; the European Commission disputes this year’s 2.7% deficit projection, but the Hungarian government remains committed to this, Varga said, adding that this could be underpinned by three factors.
Firstly, it is only February and it would be worth waiting four to five months to be able to make more certain projections on how most likely economic scenario in 2013, Varga said.
Secondly, the fiscal items disputed by the Commission have been addressed in the meantime by measures taken by the cabinet. He reminded that government decrees have already been published in the Official Gazette on the introduction of a road toll collection system and online connection of cash registers with the tax authority, adding that both issues will be settled in the first half of the year.
Thirdly, there is a massive HUF 400 bn reserve in this year’s budget to manage the surfacing of unforeseeable problems. When a budget has reserves equalling 1.3-1.4% of GDP it must be enough to correct a 0.3-0.4 percentage point slippage, Varga added.
In terms of the excessive deficit procedure, which Hungary wants to exit, the 2013 deficit projection of the EC is less important, because it will be the Commission’s May report, on which the Econfin will base its decision in June (whether or not to lift the EDP), Varga added.
He reiterated that the cabinet remains committed to exiting the EDP that had been launched against the country in 2004.
Varga noted that he finds the EC’s 3.4% of GDP deficit estimate for 2014 “slightly unjustified".
He acknowledged that the Q4 2012 GDP turned out to be worse than expected, but added that no one could tell for sure at this point how this growth figure will affect 2014.
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