Hungary 2009 budget passes key vote in parliament

BUDAPEST, Nov 25 (Reuters) - Hungary's Socialist minority government scored a big victory on Tuesday as opposition MPs backed its 2009 austerity budget for the Hungarian economy which was saved from meltdown by an IMF-led bailout.

Parliament approved the bill, which aims to lower the budget deficit to 2.6 percent of gross domestic product from this year's expected 3.4 percent, with the support of 210 representatives while 168 MPs voted against it.

Prime Minister Ferenc Gyurcsany had said he would resign if the budget failed to get through parliament.

The bill passed as the opposition Free Democrats, who quit their coalition with the Socialists in April over the slow pace of reforms, opted to back the bill after the government agreed to spending cuts and limits on future expenditure.

"Let's make it clear, this is a vote in support of Hungary and not the government," Gabor Fodor, the Chairman of the Free Democrats said prior to the vote.

Fodor said that the party disagreed with much of the budget but chose to support it as Hungary's finances remain vulnerable amid the global financial turmoil and the budget's failure would lead to instability that would be too costly for average voters.

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.

The final vote on the details of the budget is expected in late December but political analysts said Tuesday's ballot was vital and indicated that the government had the votes it needed.

The spending cuts made the twice revised budget bill realistic, analysts said, noting that said the Socialists are prone to overspending and pre-poll spending ahead of elections in 2010 pose risks going forward.

"The best assurance against future overspending is the IMF itself," economist Janos Samu at Concorde Securities said. "The best part of the IMF deal is that we have a sort of strict headmaster looking over a mischievous pupil and making sure it stays in line."

The Socialists have struggled for years to bring down the budget deficit, which exceeded 9 percent of GDP in 2006 on excessive election-year spending.

The government has since outperformed its deficit targets but failed to regain investor confidence as its spending cuts were not followed by structural reforms that could assure future fiscal discipline. (Reporting by Balazs Koranyi; Editing by Louise Ireland)