Brussels, 13/07/2005 (Agence Europe) - The European Commission concluded on Wednesday that the Hungarian authorities have taken effective action regarding the 2005 budget deficit, in line with the new Council recommendations of March this year. But achieving the deficit target of 3.6% of GDP in 2005 may require further action and important and decisive adjustments will be needed to cut it further to 2.9% in 2006. The Hungarian authorities have permanently frozen a set of expenditure and limited the use of carried-over spending appropriations, but there is still a danger of budget slipping, comments the Commission, because of the recent announcement of tax cuts and the expected rise in investment spending. It recommended that the Hungarian government adopt a prudent budget for 2006. A year ago, the Council concluded that, at 5.9% of GDP, Hungary had an excessive deficit in 2003 and issued recommendations for its correction, by 2008, below the 3% ceiling set in the EU Treaty, in line with Hungary's Convergence Programme for 2004-2008. Since the deficit was significantly above the reference value when Hungary joined the European Union in May 2004, the Council in January 2005 asked for further corrective action, without setting deadlines. Hungary is not a member of Economic and Monetary Union so no further stages in the Stability and Growth Pact procedures to penalise excess deficit can be taken beyond recommendations under Article 104.7 and 8. The communication adopted by the European Commission on Wednesday states that on the basis of the current information the Hungarian authorities appear to have taken effective action in line with the Council's latest recommendations (see EUROPE 8905), adding that it will be closely monitoring the implementation of the planned measures. The Council will return to this in September.