Hungary OKs law setting limits to state spending

BUDAPEST — Hungarian lawmakers approved a law Monday setting spending limits on the state budget.

The so-called "ceiling law" says Hungary's state budget expenditures in 2009 cannot exceed 2008 levels and can increase in 2010 and 2011 only by half the level of the previous year's rate of economic growth.

The new legislation also sets up a three-member Budget Council to advise the government on budgetary issues.

The measure was passed 214-160 in parliament. Two lawmakers abstained.

The ceiling law says any budget surpluses must be spent on tax cuts and debt repayment, and forces the government to inform parliament and state audit office about the budgetary situation every six months.

Hungary lately has been trying to cut its annual budget deficits, among the largest in the European Union in the past several years.

Excessive government spending and an over-reliance on foreign currencies for loans to businesses and individuals were among the key reasons Hungary has been hit hard by the current global financial crisis, with investors losing faith in the country's ability to meet debt payments.

The forint, the Hungarian currency, at one point lost up to 25 percent of its value against the euro and 40 percent against the U.S. dollar before recovering slightly.

In 2008, Hungary is aiming for a budget gap of 3.4 percent of gross domestic product and has a 2009 deficit target of 2.6 percent of GDP, reduced from the earlier target of 2.9 percent.

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