While the savings package spares big companies (they foot the bill for about 20 per cent of the total), most of the burden will fall on broad social groups, who will see their standard of living decline drastically. Gas prices will rise 30 per cent from August, electricity prices by 10 to 14 per cent. Food will become more expensive, and the middle VAT rate will rise from 15 per cent to 20 per cent. Taxes on luxuries wil rise: cigarettes excise tax will rise three times in the next two years. All alcoholic drinks apart from wine will become more expensive. Taxes on small companies will rise, as will tuition fees.

Neither the middle class nor the rich will be let off the hook. There will be a tax on interest of 20 per cent, and a similar tax on exchange rate profits - only long-dated bonds and investment savings will be tax free. Those earning more than HUF6m a year wil pay a 4 per cent solidarity tax on top of their 36 per cent income tax band. From 2008, there will be property taxes on houses and holiday homes. The prime minister said there will be taxes on properties worth more than "several tens of millions of forints." From next year, the current 16 per cent corporate tax will be supplemented with a 4 per cent solidarity tax, paid even by large companies that enjoy tax rebates.

Several measures are aimed at broadening the tax base and cracking down on tax avoidance. "Expected" corporate tax wil be introduced, meaning loss-making companies will need to pay corporate tax on 2 per cent o their revenues. There wil be attempts to tax undeclared holdings as well. The tax office will conduct more frequent investigations and there will be an amnesty allowing money held abroad illegally to be repatriated.

The picture concerning measures to cut expenditure is far less clear.

Concrete measures include the intention to cut the number of official ministry cars from 751 to 431 and to reduce the number of ministry employees by 23 per cent. The total amount of property occupied by the ministries will shrink from 350,000 square metres to 160,000 square metres. Several buildings will be sold. Spending on public administration will fall from HUF80bn to HUF60bn by 2008. The county-level headquarters of the police, the transport authorities and the tax office will be disbanded: these utilities will be run on a regional basis.

Rationalisation, abolition, dismissals: over 18 months, 12,500 people will be sacked. Performance-related pay wil be introduced, ineffective employees will become sackable. But Gyurcsany had nothing more to say about the new system.

Gyurcsany has now played his hand, even if Pokorni calls this the little package - the big one would come after the local elections, he said. The timing was not bad: it came on Saturday, on the second day of the World Cup. But it is already clear that much of the public had lived until now in the dream world of electoral promises. The question is how shocked people will be by the announcement. Fidesz leaders strongly implied in their reactions that they would not be supporting the prime minister in matters needing a two-thirds parliamentary majority. Yet some of the prime minister's proposals are at least that ambitious. They include proposals to abolish county councils and establish regional centres, proposals to merge small local authorities, to abolish the mayor's offices in villages with fewer than 1000 inhabitants and plans to cut the number of local councillors and their expense allowances.

This is partly Gyurcsany's fault: in public he is scarcely able to conceal his contempt for the leaders of the largest opposition party, but at the same time he calls them for secret consultations, just as he has done today. But those leaders sense a trap: they do not wish to share responsibility for the package, especially when it turns out they were right to ask the government to tell the public about the true condition of the country.

Now it turns out that the budget deficit would have exceeded 10 per cent if the package had not come. when Jarai and others suggested this, they were immediately contradicted, they were accused of distorting the numbers for political reasons. Now it emerges that the opposite is true: the coalition parties concealed the true situation and the measures that would need to be taken to redress the balance.

They even misled voters with a tax moderation package that has now been withdrawn in practice. It is the iceing on the cake that Koka claims these measures do not contradict the election manifesto.

It is hardly a consolation that Viktor Orban continues to live in a dream world. He still believes the economy's growth could be accelerated with drastic tax cuts and that balance could be achieved without spending cuts - something akin to lifting yourself out of a ditch by your own hair. A Keynesian approach will not work. There is no spare capacity that could be mobilised by stimulating demand. And Brussels would not welcome such measures, which would in any case take Hungary even further away from the Maastricht criteria.

Consolidation is necessary, as is reform. The huge budget deficit and spiralling endebtedness both demand intervention. But things have got off to a bad start. It is regrettable that the measures did not feature in the government's programme, so that parliament could debate them. Let us hope it is not too late.

RR