"Mihály Varga, Hungary’s former Finance Minister and a top economic advisor in opposition party Fidesz, believes Hungary could adopt the euro in 2015, but reiterated that this year’s budget gap could swell to 7.0-7.5% of GDP, against the official target of 3.8%. Fidesz President Viktor Orbán has said previously that he intends to cut taxes if Fidesz is voted back to power this April. Varga said he sees room for tax reductions mostly at the corporate tax.In an interview with right-wing weekly Demokrata, Varga said the key priority of Fidesz is to create jobs and that everything else, including the size of the budget shortfall, comes only second.
He said the International Monetary Fund (IMF) and the European Union should both support this viewpoint if Fidesz puts a "specific agenda, a three-year programme" on the table.
Staffs of the IMF and the European Commission have concluded the fifth review of Hungary’s economic performance under the IMF’s Stand-By Arrangement this Monday. James Morsink, head of the IMF delegation, said they have already consulted with Fidesz economists.
The only areas where taxes may be cut are those where such action would lead to job creation. He said reductions could possibly be made to corporate tax rate and contributions, but stressed that investments should also be given a larger tax break (from business tax) than currently.
With a good programme Fidesz should be able to create 100,000 jobs annually that would result in a growth of 400,000 in the number of employed by the end of the next government cycle.
Portfolio.hu viewpoint
The enlargement of the euro area has recently been popping up on the menu more and more often. The sudden "appetite" for the subject stems from the impacts of the global crisis that initially showed the advantages of having a single European currency, and the developments in Greece which intensified jitters within the euro zone.
With regards to Hungary’s euro adoption prospects, the views of the key investment banks are quite different. Bank of America/Merrill Lynch is hugely optimistic, saying Hungary could be the next after Estonia to join EMU in 2014. Meanwhile, ING says the country will definitely not be able to adopt the euro before 2015. ING’s economists do not believe Fidesz, which is most likely to win in the April general elections in a landslide, will reduce the budget gap to below the Maastricht criterion of 3.0% before the economy starts to recover. And so, the shortfall will not be at the desired level before 2014.
Varga’s remarks imply that the plans of Fidesz are closer to the latter view. We should know more about Hungary’s euro roadmap around the end of the year."
Source: Portfolio Online Financial Journal
18.02.2010