Hungary to shore up battered economy with investments, tax cuts, PM says

By John Chalmers and Gabriela Baczynska

BRUSSELS (Reuters) - Hungary wants to kickstart its economic recovery from the coronavirus pandemic by boosting investments and reducing taxes, Prime Minister Viktor Orban told Reuters on Friday, adding that extending the government's job support scheme was a backup plan.

Nationalist Orban, who has been in power for more than a decade, faces the toughest challenge of his rule now as the economy is expected to shrink by up to 6% this year while new COVID-19 infections are surging.

Hungary's weakened economic prospects could represent a threat to Orban - once dubbed a "dictator" by the former head of the EU's executive in Brussels - as he prepares to face parliamentary elections in the first half of 2022.

The economy, along with a strong anti-immigration campaign, has been a major vote-winner for the premier whose tax policies have favoured families and relied strongly on the auto industry.

"Investment, investment, investment. Tax reduction and investment," Orban said in an interview in Brussels when asked how he would try to improve the economy. "We concentrate on investments because if we have investments we have jobs."

This, he said, would be enough to get growth going again, even without Hungary's share of the European Union's new recovery fund worth 750 billion euros for the whole bloc.

When asked if the government would extend a job support scheme which expired a month ago, he said: "If there is a reason to do so we will do it but up till now we concentrate more on investment."

The economy shrank 13.6% in annual terms in the second quarter, the deepest contraction on the EU's eastern flank, and the recovery is expected to be slower than previously expected.

Asked about the forint currency, which dropped to five-month lows versus the euro this week prompting a surprise rate hike by the central bank on Thursday, Orban said the exchange rate was the central bank's job.

"The National Bank is independent and I trust the national bank so it's not my job, simply. It's the policy of the national bank," Orban said.

"If they create a strong one (forint), I have to adjust the economic policy to the strong one. If they create a weaker one I have to adjust to a weaker one."

He also stood up for central bank Governor Gyorgy Matolcsy, a long-time ally, saying he enjoyed his full confidence.

"If you look at the figures of the Hungarian economy of the last several years, they are splendid, and it's partly due to the national bank. Facts create trust."

(Writing by Krisztina Than, Editing by Gabriela Baczynska and Angus MacSwan)