BUDAPEST, HUNGARY (AP) - Hungary’s new prime minister said Sunday that the country’s economy would contract by as much as 6 percent this year, making new budget cutbacks and reforms necessary to keep the state budget in balance.
Prime Minister Gordon Bajnai said that if the government’s planned reforms and austerity measures were not introduced soon, Hungary could face a prolonged economic crisis.
“If Hungary fails to act quickly, decisively … very likely it will fall into a lasting recession,” Bajnai said after the government’s Cabinet meeting where a series of measures were adopted.
A heavy reliance on foreign investors to finance the state budget, a large proportion of home- and car owners with debts in foreign currencies, especially the Swiss franc and the euro, and an engorged welfare system have made Hungary among the countries in Eastern Europe most affected the global economic slump.
Bajnai was sworn in Tuesday after parliament elected him to replace Ferenc Gyurcsany, who resigned last month amid Hungary’s deepest crisis since the end of communism nearly 20 years ago. Bajnai said he was taking the job at most until elections are held in April or May 2010 and would not seek to run again for office.
Fidesz, the main center-right opposition party, repeatedly has called for early elections and says the Bajnai government lacks the credibility and political legitimacy needed to implement the reforms.
While the last official forecast expected gross domestic product to fall by as much as 3.5 percent, Bajnai said the depth of the global economic crisis was having increased effects on Hungary, which relies heavily on markets like Germany for its exports.
Bajnai said it was time for all Hungarians to “cry together and laugh together,” by, for example, expanding the tax base and increasing the proportion of those working as opposed to living on social welfare.
Bajnai said that among the decisions taken by the Cabinet were to lower payroll taxes to first preserve jobs and later hopefully increase the number of workplaces, raise the value-added tax to 25 percent from 20 percent, and temporarily eliminate extra pension payments and automatic annual bonuses for public employees.
He also announced plans to raise the retirement age gradually to 65 from 62, freeze some social welfare payments, eliminate energy subsidies for homeowners, introduce a real estate tax burdening especially the more valuable properties, lower expenditures on state-owned media, reform and cut subsidies for agricultural producers and simply the tax code.
The government also was planning to expand the personal income tax brackets so that around 90 percent of taxpayers would fall into the lowest category, the prime minister announced.
Bajnai said his “crisis-management” government’s aim was to help Hungary soon reach an annual growth rate 2 percentage points above the European Union average and meet the economic criteria needed to change the currency from the forint to the euro.