OECD Urges Hungary To Undertake Budgetary Reform

by Ulrika Lomas, Tax-News.com, Brussels

30 January 2004

The OECD’s economic report on Hungary, released on Thursday, has urged the government to make fundamental budgetary reforms in order to revitalise the nation’s exports and remain on target for a 2008 adoption of the euro.

Hungary’s public finances have been put in a somewhat precarious position over the last two months as bond investors fled the country, worried by high budget and current account deficits. As a consequence, the forint has come under increasing pressure, falling to new lows against the euro last month.

Amongst the many measures urged to put its house in order, the OECD recommended that the government cuts pension fund benefits and reduces tax breaks associated with home ownership loans. The report also warned the government against solving its fiscal difficulties by resorting to increases in taxation.

Nonetheless, on a positive note, the organisation noted that Hungary’s economic growth has remained resilient amid the global downturn, averaging 4.25% since 1997.

The Hungarian cabinet on Wednesday approved a 746 forint billion programme of budget cuts, which the incoming Finance Minister Tibor Draskovics has explained will come from cuts in “government operations”.

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