The country's draft budget for 2006 envisages a deficit target of 5.2% but the Commission says in its report, published on 20 October, that "even the new figure could be missed again by a large margin mainly as a result of tax cuts that are not accompanied by the necessary expenditure retrenchment".
It goes on to say that the country's implementation of tax cuts is contrary to a Council recommendation that made the timing and implementation of any tax cuts conditional upon the achievement of the deficit targets.
According to EU sources, Hungary could, subject to a Commission proposal and a Council vote including all 25 member states, have its EU cohesion funds for new projects or new projects of existing projects suspended. This holds true even though Hungary is not a member of the eurozone, said the source. There is no precedent for this type of action.
Commission spokesperson Amelia Torres told EurActiv that Economics and Monetary Affairs Commissioner Joaquín Almunia reminded fellow commissioners on 20 October that the legal possibility existed.
Hungary is committed, along with other new member states, to strive to join the single currency. However, its target date of 2010 appears to be drifting away.
