Monday, 29 October 2012

IMF unhappy with new tax steps in Hungary

REUTERS

BUDAPEST THE International Monetary Fund (IMF) has not fixed a date for its next round of aid talks with Hungary, the IMF’s representative in Hungary said on Saturday, saying that Budapest’s latest tax measures ran counter to its recommendations.

Hungary has scrambled to allay concerns that near year-long talks with the IMF were close to breaking down after a website said the IMF would not return to Budapest unless the government changed tack.

Central Europe’s most indebted nation, Hungary needs a financing backstop from the IMF in order to stabilise its shrinking economy.

“There are no dates yet for the negotiation mission to return to Budapest,” the IMF’s representative in Hungary, Iryna Ivaschenko, told Reuters in an emailed response to questions.

Her remarks suggested that a rift between the IMF and the government on how best to put the country’s finances on a sustainable footing is as wide as at any point during Budapest’s 11- month-old bid for a safety net.

The IMF and the European Union, which led a€20 billion rescue of Hungary in 2008, held a first leg of loan talks in Budapest in July.

But Prime Minister Viktor Orban’s government announced a swathe of tax rises last week as it struggled to keep the deficit at the EU’s 3 percent limit, a move that ran counter to EU and IMF advice for a more balanced fiscal adjustment. The European Commission is due to unveil its assessment of Hungary’s latest measures on November 7, which could also form the basis for a decision on whether to strip the country of millions of euros in EU funds for further budgetary slippage.

Often at loggerheads with the EU over his unorthodox measures to tackle a chronic budget deficit, Orban reneged on a pledge to halve Europe’s highest bank tax next year and went on to double a planned tax on financial transactions. “As we stated before, we believe that the focus of fiscal adjustment should be on achieving a more balanced consolidation, shifting away from ad hoc tax measures,” the IMF’s Ivaschenko said.

“This will help reduce the budget deficit in a sustainable manner and, when combined with structural reforms, generate higher and more inclusive growth.

Several of the measures announced last week are not aligned with these objectives.”

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