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Higher pensions in Hungary to complicate taxation

HUNGARY – A significant increase in pensions expenditure is a factor that will complicate the consolidation of Hungary’s fiscal system – according to the International Monetary Fund.

The IMF says there were “significant permanent expenditure increases” on pensions, wages and other social benefits in 2002. “These increases not only added to the deficit last year, but they will also complicate fiscal consolidation efforts in this and later years,” the body says.

“By any standard, fiscal policy was highly expansionary in 2002,” it adds, saying that Hungary’s estimated deficit of the general government reached 9.5% of gross domestic product.

The IMF has encouraged the Hungarian government to press ahead with the bulk of fiscal adjustment in 2003-04 “ahead of the next election cycle”.

To secure durable fiscal adjustment and satisfactory economic growth, fiscal consolidation in 2004 should focus on structural elements aimed at restraining current expenditure. It singled out pensions, public employment, health care and social benefits.

It also advised the safeguarding of capital investment “given the need to develop Hungary's infrastructure in the context of coming EU accession”.

The IMF pointed to put the country’s success down to “strong external competitiveness, export growth, and foreign direct investment”. On April 12 Hungarians voted in favour of joining the EU.

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