Tuesday, June 8, 2010

Hungary govt likely ditches pension fund move - report

BUDAPEST: Hungary's government has likely abandoned the idea of channeling private pension funds into the state budget as a form of raising extra revenues due to opposition from the IMF and EU, news portal Index said on Tuesday, June 8.

Citing several unnamed sources, Index said the government is, however, likely to go ahead with a plan of imposing some kind of special tax on banks' profits.

Daily newspaper Nepszabadsag also said the government was unlikely to try to channel private pension funds into the budget and thereby reduce the budget deficit as it strives to limit this year's fiscal gap to 3.8% of gross domestic product (GDP).

Prime Minister Viktor Orban is expected to outline plans to the ruling Fidesz party's lawmakers at a meeting later in the day and after that he is expected to announce the plans to parliament at 1100 GMT.

Hungary's center-right government promised to cut spending on Monday as it sought to repair damage from comments last week about a possible Greece-style debt crisis, as analysts said it will take months to rebuild policy credibility.

Economy Minister Gyorgy Matolcsy said on Monday the new government, in office since May 29, would stick to a budget deficit target of 3.8% this year and would need to cut spending by 1%-1.5% of GDP.

Index said on Tuesday that the government had most probably dropped the idea of a shift in the pension system as the country's lenders the International Monetary Fund and the EU did not approve the proposal.

The first tier of Hungary's pension system is a publicly managed, pay-as-you-go financed social security pension scheme, which covers all employees and the self-employed. Under a reform of the pension system in 1997 Hungary introduced a second funded tier, causing a deficit in the first tier when a proportion of the contributions were redirected to mandatory private pension funds.

By bringing these funds under the umbrella of the state budget the government could have reduced the deficit sharply, by hundreds of billions of forints per year but several analysts said such a move would likely not have been received well by markets.

Index also said that this year's tax cuts would be mostly symbolic.

However, a new tax on banks' and other financial firms' profits could bring over 100 billion forints (US$417 million) into state coffers, the website said.

The bank tax talk sent the shares of Hungary's leading lender OTP Bank into a tailspin on Monday but the stock clawed back ground later in the day.

Morgan Stanley upgraded OTP Bank to 'Equal' from 'Underweight' as the share price fell below its mark-to-market implied price target of 5,000 forints, the investment bank said in a note on Tuesday.

The forint traded at 285.80 versus the euro at 0631 GMT, up from an opening level of 287.55 in thin trade. ' Reuters

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