Government News: Top Stories

Hungary plans to axe 25,000 public sector jobs - report

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12 October 2010

BUDAPEST (Reuters) - Hungary plans tough public sector staff cuts in 2011 and may impose taxes on the energy sector to keep its pledge to the European Union to cut its budget deficit below 3 percent of GDP, a local website said on Tuesday.

Meeting deficit goals is essential for Hungary to maintain investor confidence and keep EU funds flowing into an economy struggling to return to growth after a deep recession in 2009.

Ahead of local elections earlier this month there were few clear signs from the government of the concrete steps on fiscal austerity needed to meet its promises on reducing the budget deficit, leaving markets hanging on the details.

The news portal index.hu said ministries must cut their staff by five percent next year and some state-run institutions by 10 percent, according to a planning document of the 2011 budget obtained by the portal.

The measures could axe up to 25,000 jobs, cut bonuses and lead to tens of thousands more losing their jobs if state funding to local municipalities is curbed, the portal said.

The Economy Ministry could not immediately comment on the report, but it said in an e-mailed response to earlier Reuters questions about potential job cuts that the government wanted to make public administration more efficient and cheaper.

'One of the cornerstones of the measures (planned for 2011) is a public sector with a structure adjusted to the tasks, in which the gates of wasting money are closed and we show an example in being economical,' it said.

Index.hu estimated the savings from the measures at up to 300 billion forints (£ 962 million), or roughly 1 percent of gross domestic product.

Separately, the website said without naming its source that the government would keep a financial sector tax—aimed to raise 200 billion forints this year—in 2011 and also extend a 30 billion forint special tax on the energy sector.

Index.hu said the government would cut the main corporate tax rate to 10 percent universally from January 2012 and would enact this together with next year's tax changes.

The centre-right government, which took office in May, cut the corporate tax rate to 10 percent from 19 percent as of July for companies with annual revenue below 500 million forints. For revenues above that, the higher tax rate is still in place.

The report added that Hungary would phase in a flat, 16 percent personal income tax rate next year and that the system would provide progressive tax deductions increasing with the number of children in a family.

These deductions will be offset by cutting back the existing system of personal income tax rebates, Index said. It added that the government planned to curb tax benefits currently applicable to certain payments in kind.

(Reporting by Gergely Szakacs/Sandor Peto; Editing by Patrick Graham)

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