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Wednesday, November 08, 2006

2007 Fiscal Targets

The EU Commission is skeptical about the realism of the current 2007 budget target:

The European Commission forecasts that Hungary's public sector deficit will hit drop to 7.4% of GDP in 2007 and 5.6% in 2008 from this year's 10.1%. The Convergence Program adopted by government sets targets of 6.8% and 4.3% of GDP, respectively. The Commission expressed doubt about whether the planned savings in government consumption and social spending would be achieved.

The Hungarian government doesn't agree:

The Hungarian government has on Monday insisted that its 2007 public sector deficit target of 6.8% of GDP was realistic and said European Commission projections of a higher deficit did not take into account all spending cut measures.

Actually the EU Commission's record in controlling member state budget deficits isn't exactly impressive, while the reliability of official Hungarian government statistics is also hardly beyond question at this point, so it is hard here to know whose version to accept. Going forward we shall see, I suppose.

In the short term the deficit seems to be falling within the target range, although this was to be expected as they would have been stupid not to have been rather conservative in their estimates (in VAT returns for eg). The big test will come if the domestic economy seriously slows as we go into next year.

Hungary's fiscal deficit was Ft 52.4 billion (€193.8 million) in September, the Finance Ministry announced late on Tuesday.

The deficit figure is Ft 10.4 billion down compared to the Finance Ministry's latest target published on October 16. Central budget deficit of Ft 61.7 billion was Ft 13.3 billion higher than forecast while social insurance funds registered Ft 1.7 billion surplus last month as against a Ft 11.6 billion deficit forecast. Hungary’s cash-flow-based public finance deficit was Ft 1,509.6 billion in the first ten months of the year, 86% of the annual target.

The big difference between the EU Commission forecast and the Hungarian government one is that the former only takes account of the July 2006 measures and not the October 2006 revisions to the budget text.

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