Hungary finance minister says EU funds deal will boost economy, cut debt

By Krisztina Than

BUDAPEST, June 2 (Reuters) - Hungary stands to gain a cash boost from its deal with the European Commission to release frozen EU funds, Finance Minister Andras Karman said on Tuesday, saying the money would ease pressure on the budget, help cut debt and borrowing costs, and support the struggling economy.

Karman told reporters that after reviewing the details of the budget, his ministry would "rewrite the 2026 budget and put it on realistic foundations", submitting the revised budget to parliament by the end of August. He also said EU funds were expected to arrive in the fourth quarter of 2026.

The EU money is crucial to kick-start the economy that has practically stagnated for three years.

The new government inherited a swelling budget deficit that according to the European Commission might reach 6.2% of GDP in 2026 after heavy pre-election spending by former Prime Minister Viktor Orban, ousted in an election last month.

"We will review the budget by the end of June and then we will know how big the deficit will be without interventions," Karman said. At the time the new government took over from Orban's cabinet, the deficit was assessed at 6.8% of economic output, he said.

He told a briefing that during talks with the EU that resulted in Friday's agreement on the release of 16.4 billion euros in suspended funds, his government had agreed that special corporate taxes levied by Orban's government would not be phased out.

But he said his ministry would review various corporate tax allowances and eliminate those that were not effective. This would bring extra revenues, he said.

"Phasing out the special sectoral taxes would not be realistic by August 31 due to the budget impact that would have," told Karman.

He said the spending side of the budget will be made transparent, and by the end of August a special expert group will start reviewing medium-term budget planning and fiscal rules to make proposals to the government.

(Reporting by Krisztina Than, Editing by William Maclean)