PREVIEW-Hungary's minority govt seen scoring budget victory

By Balazs Koranyi

BUDAPEST, Nov 24 (Reuters) - The government looks set to score a big victory on Tuesday after persuading an opposition party to back its 2009 austerity budget for the Hungarian economy which was saved from meltdown by an IMF-led bailout.

The liberal Free Democrats, who quit their coalition with the Socialists in April, said they would back Tuesday's ballot, the first test of the budget bill that includes votes on key main figures, including revenue, expenditure and deficit.

Opposition support ensures a victory for the minority Socialist government of Prime Minister Ferenc Gyurcsany who staked his career on the 2009 spending-cutting budget saying he would resign if it failed to pass in parliament.

It is also a success for the Free Democrats who won some demands for spending cuts, including a cut in welfare expenditure.

"What changed in the past three months was the global financial crisis," political analyst Orsolya Szomszed at Vision Consulting said. "With the crisis, a lot of taboos were knocked down, including the issue of pensions and welfare spending, and the Socialists were forced to take steps they didn't quite like to take but were forced to."

Hungary has been one of the hardest hit countries in the global turmoil and needed an International Monetary Fund led $25.1 billion rescue package to avoid meltdown but its economy is still expected to contract by 1 percent next year.

As a response to the crisis and in part on the IMF's urging, the Socialists agreed to reduce 2009 spending, cut pensions and public sector wages, and cut the deficit more than planned.

In the twice revised budget bill, the government plans for a deficit of 2.6 percent of GDP, down from a 2.9 percent previous target and this year's expected 3.4 percent deficit.

AMENDMENTS POSSIBLE

"This is still a bad budget and needs to be modified," Gabor Horn, a top Free Democrat said on Monday. "But in the past three months, not only did Hungary get pushed to the brink in the financial crisis, but several of our proposals were accepted."

Horn said the party would support Tuesday's vote but will continue to push some amendments, including further spending cuts, before the final vote in mid December.

But analysts said it was not in the interest of the Free Democrats, who poll well under the five percent needed to enter parliament, to block the budget as the government's collapse may lead to early elections and could endanger the party's survival.

"Indeed this is a victory for the prime minister, even if a temporary one," Szomszed said. "The opposition has argued that he's not legitimate and should even be ignored but here he is, governing, holding summits, making decisions, passing a budget so he's proved the opposition wrong."

With Gyurcsany trying to build political capital as a crisis manager, his next task will be to see the country through the current turmoil. He will be judged in the 2010 election in great part over his handling of the economy, Szomszed said.

The only excitement in Tuesday's vote could be a vote on the opposition Democratic Forum's proposal to cut the personal income tax and the inheritance tax, which parliamentary parties may support. The Democratic Forum also proposed raising the value added tax (VAT) by two percentage points to 22 percent to compensate for lost revenue.

For a factbox on the budget bill please click [nLO714297]. (Reporting by Balazs Koranyi)