The government must avoid linking next year's wage rises to planned tax changes, as such indexation would increase inflationary pressure, according to central bank vice president Henrik Auth, Magyar Hirlap reported.

Finance ministry forecasts for maintaining the real value of wages next year, with nominal wages rising 9%, indicated the government wanted an indexation-type wage agreement. He said a similar agreement last year kept wage hikes at a high level, maintaining demand-driven inflationary pressures on Hungary's economy.

Auth said the government's 2004 budget plans revealed last week were on the right track for cutting demand in the economy, reducing the budget deficit and inflation, and joining the single currency euro zone in 2008. But the wage hikes carried some risks, he added.

Auth also said that the Socialists, the senior government coalition party and their junior partner, the liberal Free Democrats (SZDSZ), must quickly sort out their differences over government plans to put off cuts in personal income tax in 2004.

(NewsBase 28.vii.03)