The government withdrew the two original drafts from parliament after economic assumptions were deemed over optimistic based on global economic developments and replaced them with a third draft with a more pessimistic view. The third bill is based on findings that point to Hungary’s economy facing a 1% contraction next year.

The third ‘pessimistic’ version is expected to allow the government to reduce the public sector deficit to 2.6% by the end of 2009, ahead of earlier projections of 2.9% in the previous draft, just below the crucial EU guideline of 3%.

Those to suffer most in the government’s struggle to combat the national debt are people working in the public sector. The government plans to introduce a cap on 13th month pension payments at HUF80,000, saving HUF14bn (USD70.8m) and also announced that it will scrap the 13th month salary, effectively the public sector's 'Christmas bonus'.

Wage increases in the private sector will be capped at 1.6% year on year whilst the public sector will have their wages frozen this year, effectively leading to an average 2.6% decline in wages.

Wage-related austerity measures and an expected 0.6% decrease in employment will lead to a 3.7% contraction in household consumption. The predicted level of export growth has also been reduced, from 4.1% to 3.9%.

The government also proposed HUF35bn cuts for the Health Insurance Fund and HUF192bn less funding for local governments. In terms of tax revenue, the Hungarian Finance Ministry has announced that excise duty receipts will be HUF20bn less, corporate tax and special company tax will drop HUF58bn and VAT HUF66bn.

The main opposition party Fidesz has renounced the draft and called for tax cuts to spur growth. The party sees the solution in EUR5bn worth of tax cuts and EUR5bn worth of SME subsidies from EU funds, in addition to spending cuts.