U.S. Markets closed

Hungary spending to add 171billion forints to 2013 deficit

BUDAPEST (Reuters) - Hungary has submitted amendments to the 2013 budget that will increase the cash deficit by about 171 billion forints (479.35 million pounds), after a decision to buy German E.On's gas business and boost spending in other areas.

Prime Minister Viktor Orban's government, which faces an election in the first half of 2014, has set the 2013 deficit target at 2.7 percent of economic output. It has ruled out a repeat of election-year overspending seen in the past decades.

Draft legislation submitted by Economy Minister Mihaly Varga on Saturday said the full-year 2013 deficit would rise to 1.05 trillion forints. However, he said the changes would not affect budget targets set under European Union norms.

The bill said the changes were necessary after the purchase on E.On's gas business, a planned capital injection into savings banks, a rise in teachers' salaries, higher spending on human services and other items.

Varga said a reduction in fiscal buffers, budget amendments passed earlier in the year - such as a one-off increase in a tax on financial transactions - as well as better economic performance would make up for the proposed higher spending.

However, the Fiscal Council, a panel of economists including central bank Governor Gyorgy Matolcsy, warned of rising risks to achieving the government's budget goals in an assessment of the latest changes published on parliament's website.

"The council considers the deficit target achievable, even with the higher spending items. However, there are rising risks," it said, highlighting the proposed cut in fiscal buffers as one of its key concerns.

The panel said the higher spending and the cut in reserves amounted to loosening worth 0.8 percent of gross domestic product. It flagged risks to an expected "modest" reduction in Hungary's public debt in 2013, the highest in central Europe.

However, the government said it expected debt to decline further, even after the latest changes to the budget.

Lawmakers of Orban's ruling Fidesz-Christian Democrat party alliance are also proposing an increase in tax benefits for low-income families and other steps that could put further strain on the budget in a still weak economy, analysts have said.

On Friday, Hungary reached an agreement with phone companies on an extension of their mobile frequency licences, which will provide the budget with one-off income worth over 100 billion forints, the market regulator NMHH said.

The budget amendments made no mention of this development.

(Reporting by Gergely Szakacs, editing by William Hardy)