BUDAPEST, Hungary (AFX) - Hungary's prime minister announced a series of tax increases and spending cuts aimed at curbing the huge state budget deficit, a day after being sworn into office as the country's first post-communist government to win re-election.
Faced with a budget gap nearly three times the European Union's limit for countries using the euro, Socialist Prime Minister Ferenc Gyurcsany had been talking about needed reforms for weeks, especially in the public sector.
But until Saturday, he had not revealed the measures, which are certain to be unpopular.
'Hungary doesn't need shock therapy but rather structural and smart reforms,' Gyurcsany told a forum of business leaders and labor union representatives. 'We are preparing for reforms, not a one-off budget adjustment.'
The prime minister said the reforms -- including the elimination of five ministerial positions and thousands of public administration jobs -- were needed to turn Hungary 'into a stronger, more competitive' country.
On Thursday, Gyurcsany acknowledged that the government would surpass its initial deficit target of 4.7 percent of gross domestic product, saying a budget gap of 8 percent of GDP was possible for 2006 only if reforms were implemented quickly.
The government has vowed to meet the EU's economic guidelines by 2008 in order to switch to the euro in 2010.
Gyurcsany said the budget balance would improve by 1 trillion forints (US$4.78 billion; euro3.78 billion) in each of the next two years, with 40 percent of that stemming from lower expenditures and 60 percent from added revenues.
This would allow the government to meet the EU budget deficit limit of 3 percent of GDP in 2008, Gyurcsany said.
The prime minister announced increases in value-added tax, a special 'solidarity tax' of 4 percent for people earning more than 6 million forints (US$28,600; euro22,700) annually, a new property tax, higher taxes for independent contractors and a several other new taxes.
Gyurcsany also announced that energy subsidies would be curbed, resulting in an average price increase of 30 percent for natural gas -- widely-used in households for heating and cooking -- and a 10-14 percent increase for electricity.
Tax authorities will also investigate the assets of 10,000 taxpayers, while Hungarians with bank deposits abroad will be allowed to repatriate their money at a 10 percent tax rate, Gyurcsany said.
Parliament will debate the proposed reforms next week. With the government coalition of Gyurcsany's Socialists and the much smaller Alliance of Free Democrats holding 210 of the legislature's 386 seats, the measures are all but guaranteed to be approved.
Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.