Council opinion

of 8 March 2005

on the updated convergence programme of Hungary, 2004-2008

(2005/C 177/05)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies [1], and in particular Article 9(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

In view of the above assessment and in the light of the recommendations made by the Council under Article 104(7) on 8 March 2005, the Council is of the opinion that Hungary should:

(i) take action in a medium-term framework in order to bring the deficit including the burden of the pension reform below 3 % of GDP by 2008 in a credible and sustainable manner, in particular through additional measures to achieve the deficit target for 2005 and a subsequent adjustment of 2 percentage points of GDP to correct the excessive deficit by 2008 and by seizing every opportunity to accelerate the fiscal adjustment;

(ii) make the timing and implementation of any tax cuts conditional upon the achievement of the deficit targets of the convergence programme update submitted in December 2004;

(iii) progress with the envisaged reforms of the public administration, health and education systems as committed also with a view to improving the long-term sustainability of the public finances.

Comparison of key macroeconomic and budgetary projections

Convergence programme (CP); Commission services autumn 2004 economic forecasts (COM); Commission services calculations.

| 2004 | 2005 | 2006 | 2007 | 2008 |

Real GDP(% change) | CP Dec. 2004 | 3,9 | 4,0 | 4,2 | 4,3 | 4,6 |

COM | 3,9 | 3,7 | 3,8 | n.a. | n.a. |

CP May 2004 | 3,3-3,5 | 3,5-4,0 | cca.4 | 4-4,5 | 4,5-5,0 |

HICP inflation(%) | CP Dec. 2004 | 6,8 | 4,5 | 4,0 | 3,5 | 3,0 |

COM | 6,9 | 4,6 | 4,2 | n.a. | n.a. |

CP May 2004 | cca.6.5 | cca.4.5 | cca.4 | cca.3.5 | cca.3 |

General government balance(% of GDP) | CP Dec. 2004 | ‘�4,4 | ‘�3,6 | ‘�2,9 | ‘�2,2 | ‘�1,6 |

With pension reform | ‘�5,3 | ‘�4,7 | ‘�4,1 | ‘�3,4 | ‘�2,8 |

COM | ‘�5,5 | ‘�5,2 | ‘�4,7 | n.a. | n.a. |

CP May 2004 | ‘�4,6 | ‘�4,1 | ‘�3,6 | ‘�3,1 | ‘�2,7 |

Primary balance(% of GDP) | CP Dec. 2004 | ‘�0,4 | 0,0 | 0,2 | 0,6 | 1,0 |

With pension reform | ‘�1,1 | ‘�0,9 | ‘�0,7 | ‘�0,3 | 0,1 |

COM | ‘�1,1 | ‘�1,2 | ‘�1,1 | n.a. | n.a. |

CP May 2004 | ‘�0,5 | ‘�0,2 | 0,1 | 0,3 | 0,4 |

Government gross debt(% of GDP) | CP Dec. 2004 | 56,7 | 55,5 | 53,0 | 50,6 | 48,3 |

With pension reform | 59,9 | 58,6 | 56,8 | 54,9 | 53,2 |

COM | 59,7 | 59,5 | 58,9 | n.a. | n.a. |

CP May 2004 | 59,4 | 57,9 | 56,8 | 55,6 | 53,7 |

[1] OJ L 209, 2.8.1997, p. 1.

[2] The primary balance is not calculated according to the conventional definition.

[3] Including the pension reform burden, the general government deficit path would be 5,3 %, 4,7 %, 4,1 %, 3,4 % and 2,8 % of GDP between 2004 and 2008.

[4] There are accounting uncertainties related to agricultural subsidy payments which could reduce the difference between the cash based and the accrual based deficit, thereby increasing the accrual based deficit in 2004. If the refunds of VAT are accelerated, as was indicated by the Hungarian authorities, they might increase the deficit of 2004 by almost 0,7 percentage points.

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