Hungary mulls raising taxes to ensure fiscal consolidation as it seeks to exit EDP.

By bne IntelliNews May 24, 2013

The Hungarian government could raise the extraordinary tax on financial institutions, taxes on energy companies, the financial transactions tax as well as introduce a tax on advertising as it aims to convince the European Commission it will manage to achieve the fiscal deficit targets in order to exit the Excessive Deficit Procedure (EDP) launched against Hungary in 2004, MTI news agency reported, citing PM Viktor Orban. 

The government announced earlier in May that it would order a freeze of budget expenditures for 2013 worth about 0.3% of GDP. If the EC deems the freeze insufficient, big, one-off government investments worth about 0.2% of GDP will continue only if they are covered with revenue from the sale of state assets. A third step, including raising taxes would take place only if the EC still sees the former two measures insufficient to ensure deficit targets.

Hungary's government projects a 2.7% of GDP deficit in both 2013 and 2014, well under the EU's 3% threshold.

Although the European Commission has revised upwards its GDP growth projection and lowered its deficit estimate for Hungary, it still expects the country to overshoot the 3% threshold in 2014. According to the Commission, the EDP against Hungary could be lifted if additional adjustment measures are introduced in order to ensure that the deficit remains below 3% of GDP both this and next year.

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