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UPDATE 1-Hungary to trim deficit in 2022 election year, ignoring fiscal panel

* Shortfall seen at 5.9% of GDP after 7.5% in 2021

* Oversight panel has called for sharper reduction

* PM Orban faces possible tight election in 2022

* Has ramped up spending on key voting groups (Adds detail, comments)

BUDAPEST, May 4 (Reuters) - Hungary’s government plans to reduce the budget deficit to 5.9% of gross domestic product in the 2022 election year from 7.5% of GDP expected in 2021, Finance Minister Mihaly Varga said as he submitted the budget draft to parliament on Tuesday.

The upcoming election year will be the first since Prime Minister Viktor Orban took power in a 2010 landslide that his government will not keep the shortfall below the European Union’s usual 3% of GDP ceiling.

Varga said the budget would support economic growth next year, taking advantage of the leeway granted by the European Commission allowing EU member states to run higher budget deficits this year and next due to the pandemic.

Facing the prospect of a united opposition for the first time, Orban has ramped up spending on family support measures, income tax cuts for younger people and pension hikes, targeting key voting groups ahead of the ballot due in April.

“Our main priority after the pandemic will be to restart the economy,” Varga said.

Economic growth could accelerate to 5.2% next year from 4.3% expected in 2021, he said.

Orban’s government had ignored a warning from the Fiscal Council, an oversight panel, that the budget deficit and public debt levels should be reduced more aggressively as Hungary returned to growth in the aftermath of the pandemic.

The panel said the proposed 0.6% reduction in public debt to 79.3% of GDP next year, as well as the planned decrease in the budget deficit, were “insufficient,” while the government’s growth forecast was near the top end of current projections.

The panel also said reserves in the 2022 budget for any unforeseen risks were low.

“We were aiming to create a balanced situation,” Varga said, adding that the economy still required sufficient support to clamber of out the pandemic. (Reporting by Gergely Szakacs; Editing by Angus MacSwan)

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