Many CEE governments have had to take a deeper look at their budgets in recent days and analyze the consequences of weaker economic growth on the revenue and expenditure sides of their budgets. Hungary's PM came up with a tax overhaul proposal that would reduce the tax burden on the corporate sector (including contributions) and increase some indirect taxes, as well as introduce a wealth tax. The Romanian government approved the budget for 2009 with a deficit at 2% of GDP, which seems to be reasonably restrictive (especially in the area of wages in the public sector and pension increases), but which still has to be discussed with social partners before submission to Parliament for final approval. It seems that Romania has also received implicit backing from the EU/IMF on the financing side, as long as the fiscal deficit is kept under control. Sticking to a fiscal consolidation plan opens the door to further monetary easing in Hungary and Romania in the following months.

Erste Group: FI & FX CEE Insights