Hungary will need to cut about 1 percent to 1.5 percent of GDP off spending to meet an IMF and EU budget target this year, but the government also needs to kickstart growth, Economy Minister Gyorgy Matolcsy said on Monday.
In several appearances on Monday as the government strives to repair damage to its credibility with markets after a sell-off last week, Matolcsy said Hungary would stick to the 3.8 percent deficit target agreed with lenders for this year.
He told CNBC television that there were blunders in government communication last week, but "it is blatant that Hungary is not Greece."
Comments by officials that Budapest's debt problems gave it a slim chance of avoiding a similar fate to Athens, knocked the euro back on Friday.
"We'll stick to our 3.8 percent budget deficit level for this year. It was agreed by the IMF and the EU and it was also agreed by the Hungarian government so there is no doubt about that, we'll stick to that figure," he said.
"On the one hand it's clear cut again there is no need to have an austerity plan — on the other hand, there is no option to have a fiscal stimulus package — so we'll have an action plan on the part of the new government, we'll cut budget expenditures (and) on the other hand we'll boost revenues."
Matolcsy also reiterated that the government plans to cut taxes. After a meeting of the new center-right cabinet to discuss its economic program at the weekend, it remains unclear that can be squared with containing the deficit at 3.8 percent.
"One cannot helped being puzzled when Hungarian officials talk about a much larger than planned budget deficit and at the same time rules out austerity measures and instead promises tax cuts," said Danske Bank analyst Lars Christensen.
Comments by a Fidesz party official and the prime minister's spokesman comparing Hungary to Greece drove the forint lower, caused a selloff in government bonds, and helped send the euro to a four-year low against the dollar on Friday.
At the weekend, top government officials launched an attempt at damage control, describing comparisons to Greece as "exaggerated" and insisting Hungary would aim to meet the deficit target.
Matolcsy, speaking on CNBC, said that by the end of May, the budget deficit had reached 87 percent of the full-year target but the government will keep the deficit under control. And while there was no need for an austerity package, having a fiscal stimulus package was not an option now.
The forint rose more than half a percent in morning trade.
Most economists say Hungary is in a much stronger position than Greece.
Its deficit and debt ratios to GDP are not nearly as high; public debt was about 80 percent last year, compared to 133 percent projected for Greece this year. It also ran a current account surplus last year and had a budget gap of 4 percent after deep spending cuts.
The government started a three-day meeting on Saturday and is expected to decide on an action plan by the end of Monday.
Matolcsy said the government was examining possibilities for a flat tax of between 15-20 percent in personal income taxation which should be linked with family taxation.
"As we see now, and the government is preparing to make such a decision, that from Jan. 1, 2011, a flat family tax could be introduced and finalized over a period of two years," Matolcsy told TV2 television.
Matolcsy also said there was a proposal on the government's table which would abolish up to one-fifth of 58 different types of taxes existing now and he hoped a radical three-year tax cutting program could be launched already this year.
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