The Commission said in statement that "Hungary has again failed to take effective action to correct its excessive deficit ... calling into question the 2008 deadline for correcting the deficit to below 3% [of GDP]," a necessary step if the country is to adopt the euro in 2010.
The Commission concluded that the "Hungarian budgetary outlook has considerably deteriorated" since its last assessment in July when the government's 2005 deficit target was 3.6% of GDP. Hungary is expected to miss its deficit targets for both 2005 and 2006 by a wide margin, it added.
"The substantial deviation in both 2005 and 2006 ... is worrying and puts into question the credibility of the correction of the excessive deficit by 2008," commented Joaquin Almunia, European commissioner for economic and monetary affairs.
The Hungarian government recently revised its 2005 target to 6.1%, corrected for the effect of pension reform, after the EU insisted it must include motorway construction costs in the deficit. The inclusion of motorway construction accounts for 2% of GDP, while the Commission also pointed to a 0.5% slippage "that the government has decided not to correct contrary to previous commitments."
According to the Commission, the government's new 2006 deficit target of 5.2% could also "be missed by a large margin as a result of tax cuts that are not accompanied by the necessary cuts in expenditure retrenchment."