Hungary's Finance Ministry has said on Wednesday that the cost of buying new military aircraft may boost next year's public sector deficit to 5.2% of GDP, against the government's recently revised target for a 4.7% gap, Bloomberg reported.The EU probably will say Hungary has to account for the cost of leasing Gripen fighter planes, which would add 0.5 percentage points to the budgeted deficit of 4.7% of GDP, István Várfalvi, deputy state secretary at ministry,
“They want us to include the leasing cost in the budget and that would boost the deficit," Várfalvi said.
Hungary's measures to cut its budget deficit are “proving to be inadequate,"' according to a draft ruling obtained by Bloomberg on Tuesday. “The government informed the Commission that it had no intention to take action to correct,"' its shortfall from higher spending and lower taxes, “contrary to earlier commitments."
Hungary is leasing 14 Gripen fighter planes, made by Saab AB and BAE Systems Plc, for HUF 122 billion to fulfill NATO membership obligations six years after joining the military alliance.
Hungary will spend another HUF 88 billion on fitting the jet planes with weaponry purchased from the U.S. and paying off a loan from Sweden to help finance planes.
According to the draft ruling, the European Commission is expected to reprimand Hungary on 20 October for failing to remedy its budget situation. In order to meet euro zone criteria and adopt the single currency in 2010, Hungary would need to trim its deficit below the EU's 3% ceiling in 2008.
The shortfall may top 8% of GDP next year, or almost three times the target, the report said.
Bloomberg did not say whether the figure was adjusted for pension reform costs or not.
On 28 September, the government announced that it would miss its deficit target in 2005, for the fourth year, after the EU ruled it could not take the cost of motorway construction off budget.
According to the new goals, the public sector deficit will come in at 6.1% of GDP this year instead of the planned 4.7% (adjusted for pension reform costs), and reach 4.7% in 2006, up from the original target for a 3.6% gap.
The EU report said Hungary must also include the cost of state employee bonuses in its books. Even without the accounting changes, Hungary will overrun this year's budget deficit target by 0.5 percentage points, the report said.
The cost of the new military airplanes, which Hungary is buying from SAAB AB's Gripen, will alone boost next year's budget shortfall to 5.2% of GDP instead of the planned 4.7%, the EU said. Hungary's plan to cut the VAT and a proposed increase of child-support subsidies will boost the deficit further, according to the report.
Source: Portfolio online financial journal
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20.10.2005