October 26, 2010 / 3:31 PM / 7 years ago

UPDATE 2-Hungary seeks to curb court power over state finances

* Govt moves to strip court of jurisdiction in budget issues

* Weakening top court is dangerous precedent - analyst * Pension funds: plan to suspend transfers unconstitutional

* Association ask president to refer law to top court

(Recasts, adds legislation, analysts)

By Marton Dunai and Krisztina Than

BUDAPEST, Oct 26 (Reuters) - Hungary's ruling Fidesz party on Tuesday proposed stripping the Constitutional Court of jurisdiction over matters relating to state finances, such as a planned major change to the pension system.

Analysts said the proposal, which could become law within days due to the ruling party's dominance in parliament, would weaken the system of democratic checks and balances in the country.

"Unscrupulous as Fidesz has been so far, this is a level of power demonstration that is unprecedented," Political Capital analyst Peter Kreko said.

"It is politically understandable, but it is a very dangerous exercise in a democracy."

In legislation submitted to parliament, Fidesz proposed that the country's highest court should no longer rule on matters of the state budget, its execution, central taxes, fees, social security contributions, and tariffs.

Such a change would help the government head off a legal challenge from private pension funds, which earlier on Tuesday said they would ask the court to annul a new law that suspends transfers of members' contributions to the funds they run.

The new law would leave a total of 420 billion forints ($2.14 billion) in the state budget this year and next, helping the government meet its deficit targets. But it has prompted criticism from the European Union, the IMF and the central bank.

Fidesz said that its planned legal change would prevent a review of the pension bill and that the top court no longer needed such powers 20 years after the fall of Communism.

"The Constitutional court has wide-ranging rights to review laws, which had been justified in the first period of the regime change," Fidesz parliament group leader Janos Lazar wrote in the justification filed with the legislation.

"As the legal system has solidified, such a wide jurisdiction for the Constitutional Court has become unjustified."

Fidesz can change any laws thanks to its two-thirds majority in parliament.

A spokesman for the court, Andras Sereg, declined to comment on the Fidesz proposal. Earlier in the day the court annulled a law which would tax severance payments in the public sector at 98 percent above 2 million forints. [ID:nBUD005566]

Gabor Torok, analyst at think tank Vision Consulting, said the government would have to create an alternative ultimate appellate level in economic issues.

"This reduces the importance of the Constitutional Court, no doubt," he added.

FUNDS SEEK REVIEW

The private pension funds association Stabilitas said on Tuesday it had asked President Pal Schmitt to send the law on suspending transfers to private pension funds -- passed on Monday -- for review to the Constitutional Court.

The Stabilitas Association, which groups private funds in Hungary, said it would ask the top court to annul the law with immediate effect as it believed the legislation goes against Hungary's constitution on several points.

The laws passed late on Monday suspend state transfers into private pension funds for the next 14 months and allow taxpayers to return to the state system by the end of 2011.[ID:nLDE69P05S]

Private pension funds, created after Hungary reformed its pension system in 1997 to introduce a second, mandatory pillar to complement the state pension scheme, manage 2.7 trillion forints worth of assets on behalf of about 3 million fund members.

Analysis on the pension changes: [ID:nLDE69P1OQ]

Scenarios for the government plans: [ID:nLDE69K1UV] (Editing by Hugh Lawson)

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