Hungary Liberals Demand Changes to Budget

The forint fell 0.7 percent against the euro on Monday as a result of the political uncertainty.

Hungary's liberal Free Democrats want radical changes to the minority Socialist government's budget plans before they will consider supporting it, the party said on Monday.

Rating agency Standard & Poor's also said the tax plan, if implemented, may lead to a downgrade in the country's BBB+ rating to which it assigned negative outlook in March.

The liberals, who withdrew from the coalition government in April, rejected the Socialists' 1,200 billion forint ($7.58 billion) multi-year tax-cut programme at the weekend, saying it was unrealistic and they wanted genuine tax and spending cuts.

Free Democrat votes are needed for the budget to be approved and Socialist Prime Minister Ferenc Gyurcsany said he would resign if it failed.

The forint fell 0.7 percent against the euro on Monday as a result of the political uncertainty. But financial analysts said there was little risk of a rise in the budget deficit, set by the government at 3.2 percent of gross domestic product.

"If there are no serious changes to the proposals..no rethinking of the role of the state and spending, then there is no reason for Free Democrats to support the programme," Jozsef Gulyas, a member of the party's executive committee, told Reuters.

"Our criticism may change the thinking of the Socialists and they may find that it is worth changing Ferenc Gyurcsany's programme," he said.

S&P said the plan that increasing tax revenues from the black economy to finance the tax cuts was not credible and the measures could hit efforts to reverse a rise in state debt.

"This could eventually lead to a downward revision of the ratings," it said in a statement.

Gabor Horn, another senior Free Democrat, said their rejection was not intended to force Gyurcsany out.

"For us, it's a question of whether this country can embark on a road to growth and social transformation or whether it will stuck where it is now," he told state television.

Financial analysts and the central bank foresee Hungary's economy growing by about 2 percent this year, well behind those of other central European countries.

Citigroup analyst Eszter Gargyan said the most likely outcome was that the Socialists would continue to govern but might have to replace their prime minister.

"We believe the risks of excessive fiscal loosening are still limited, despite the increased political turmoil," Gargyan said. "The key risk to watch out for is if (Gyurcsany's) potential successor supports a more populist policy."

The Fidesz opposition party is well ahead of the Socialists in opinion polls, while the Free Democrats are below the 5 percent needed to enter parliament. The next general election is due in 2010.

The Socialists have 189 seats in the 386-member parliament and the Free Democrats 20.