Liberals Tell Govt To Cut Taxes Or Fail

Hungary's minority Socialist government has pledged to cut taxes next year to revive economic growth which plunged to just 1.3 percent in 2007, the lowest in the European Union, after austerity measures to rein in a ballooning budget deficit.

Growth rose to 2.2 percent in the second quarter, but heavy state spending has remained a drag on Hungary's competitiveness relative to its central European peers. A slowdown in the euro zone is also hampering recovery.

On Saturday the Free Democrats, who quit the government in April after a row on health reform, said the government had no alternative but to implement meaningful cuts in both taxes and state spending to revive the economy.

"The government's economic programme can only be taken seriously if it contains at least 1,000 billion forints ($6.32 billion) worth of tax cuts and spending cuts of the same amount for the next three years," Free Democrat parliamentary group leader Janos Koka told local news agency MTI in an interview.

The Socialists, however, are unlikely to have an appetite for more fiscal tightening after austerity measures launched two years ago sent their public support to historic lows. In August, they languished at just 18 percent in opinion polls.

Government tax reform plans floated in the local press have included the abolition of a smaller corporate tax and some reduction in social security payments in the range of about 100 billion forints, well short of what the Free Democrats demand.

Koka, party chairman at the time when the Free Democrats quit the ruling coalition, told MTI the government should lower the spending ceiling of ministries by 500-600 billion forints in real terms next year to create room for tax cuts.

"If the government does not want an economic turnaround and falls as a result of ignoring proposals of former finance ministers, experts and the Free Democrats, that will not be the liberals' fault," Koka, a former economy minister, was cited by MTI as saying."

Source: HVG