PM Viktor Orban to announce austerity measures

AFP - Hungarian Prime Minister Viktor Orban was set to announce austerity measures to curb a rising budget deficit in a statement to parliament on Tuesday.

His announcement comes amid great unease on European and international financial markets after comments last week by Lajos Kosa, deputy leader of the ruling centre-right Fidesz party, comparing Hungary to debt-stricken Greece.

Newspaper commentary expected that the measures would include overall tax hikes and spending cuts, mainly in the banking and public sectors.

They suggested that any tax cuts -- promised by Fidesz in the election it won last month -- would be only symbolic as otherwise the government would not be able to hold the budget deficit at 3.8 percent of Gross Domestic Product.

This level was agreed by the previous government under the terms of a 20-billion-euro rescue package arranged by the EU and International Monetary Fund with Budapest in late 2008.

The right-wing Magyar Nemzet daily noted that in the first five months of 2010, the state had spent about 736.2 billion forint (2.6 billion euros) more than it took in.

To reverse this trend, the newspaper suggested the government might levy a special bank tax and make it easier to lay off civil servants by introducing a shorter notice period and cutting redundancy pay.

Government experts say a bank tax might raise an additional 100 billion to 300 billion forints but opponents say the banks will be quick to pass any extra cost on to their clients.

The left wing daily Nepszava said the government may introduce a flat tax rate of 15 to 20 percent and increase the tax threshold for small companies and manufacturers who at the moment pay 10 percent tax if their income is no more than 50 million forints. This threshold could rise to 100 or 200 million forints.

The centre-left Nepszabadsag wrote that plans for a tax break for families may have to be scrapped or watered down.

In addition, Nepszabadsag said there may be plans to freeze energy prices for people on low incomes -- one of Fidesz' election promises.