Brussels could make tough demands on Hungary in return for extending a credit line, Hungarian weekly HVG.hu reported on the basis of confidential European Commission documents.
According to HVG, the criteria are based on those already known from country-specific recommendations, however it is new information that the EC is allegedly going to demand a review of the bank tax, as well as consultation with international lenders on the 2013 budget before a vote in Parliament.
Delegations of the European Union and the International Monetary Fund are scheduled to stay in Hungary from 17th to 25th July to commence talks on an international credit line. Hitherto there have been only speculation on what demands Brussels might have in exchange for approving credit to Hungary. However, a European Commission document leaked to HVG.hu contains a detailed list of the prerequisites set by the commission.
These are the following:
Brussels would like to see government plans for leading the country out of an ongoing excessive deficit procedure once and for all, including a presentation of structural reform and the feasibility of meeting mid-term targets.
It is old news to the EU that the government's economic forecasts are overly optimistic. The latest European Commission forecast projected 1% economic growth in Hungary in 2013. Meanwhile, the 2013 budget is based on a government estimate of 1.6% growth, something the Economy Ministry believes could be as high as 2% if all goes well.
The EU is expecting Hungary's Parliament to refrain from a vote on the 2013 budget until the government has consulted the IMF and the EU. Originally, the plan was to approve the cornerstone figures of next year's budget on Thursday. It will be interesting to see the government's response in light of the new information from Brussels.
The Commission has taken a critical stance on Hungary's Economic Stability Act and could demand an amendment. The EU has also found fault with the fact that the authority of the Fiscal Council is limited to making proposals on budget policies with an impact for several years ahead.
The EC is expecting Hungary to lower the tax burden on low-income taxpayers.
The government should consider hikinig energy taxes or adopting a real estate tax.
Brussels is also demanding that Hungary take measures to assist women's job market participation, and has made a recommendation for a more efficient system of welfare benefit for families.
The EU is concerned that the government's HUF 300 billion action plan for job creation will be left hanging in the air with no sufficient funding available.
The Commission has also advised that Hungary cut the amount of paperwork tying up the efficiency of businesses.
Hungary may be required to review the bank tax, lower the rate to 0.5% and harmonize it with the proposed European transaction tax in the long run. Currently, the law requires financial organizations to pay 0.15% on the first HUF 50 billion of the adjusted balance sheet total, and 0.53% on the rest. Hungary is planning to cut the bank tax in half in 2013.
Expectations of Hungary include making the telecommunications tax compliant with EU regulations. The EU launched a second infringement procedure against Hungary on account of the telecom tax in late June. The second one is concerned with whether telecom tax rules discriminate against multinational companies.
In education, Hungary is expected to come up with a strategy aiming to reduce the number of elementary school dropouts. A new concept contained in the leaked document which has not come up in earlier discussion is a requireemnt for the government to submit a plan designed to prevent a decline in the number of graduates as an undesirable result of lower number of college/university admissions.
Brussels is demanding that Hungary make a step ahead in mass transit reform. As a new feature of the leaked document, it is mentioned that the Commission wants to see privatization in mass transit as well as in the energy sector.
A diplomatic source who spoke with HVG on condition of anonimity emphasized that the list above is a potential maximum requirement for the negotiations to proceed, which should be seen as a "menu" from which the EU will pick high-priority items.
The European Commission released a list of recommendations specific to each member state on 30th May. Prime Minister Viktor Orbán declared the government was not going to comply with the Commission's recommendations to change the tax regime.
Source: HVG, Portfolio.hu