BUDAPEST, Jan 15 (Reuters) - Leaders of Hungary's ruling Socialist party propose that the government should plug a hole in this year's budget by cutting spending and loosening the deficit target, internet portal Index reported on Thursday.
Index (www.index.hu) said, citing unnamed sources that Socialist party leaders, including Prime Minister Ferenc Gyurcsany who met for two days in a village east of Budapest, discussed several options including a hike in value added tax.
Index said the deficit could rise to 2.9 percent of gross domestic product (GDP) from a present target of 2.6 percent.
Socialist politicians were not immediately available for comment while the finance ministry declined comment.
Earlier in the day the government called an extraordinary parliament session for Jan. 29 to debate economic issues, after Gyurcsany said on Wednesday the economy will contract by 2-3 percent this year, much more than an earlier government forecast for a 1 percent recession.
Local news agency MTI said on Thursday, citing Gyurcsany, that in the next two weeks the government would draw up new forecasts and draft legislation in preparation for a tax reform, boosting demand, and changes in the social system.
"Recession is our number one public enemy," Gyurcsany was quoted as saying.
Hungary has been one of the hardest hit countries in central Europe and had to resort to IMF help last year, as heavy government spending, high household borrowing, and a high level of external financing have left the economy exposed to the world financial crisis.
Analysts said the deeper than expected recession and lower than projected inflation would cut budget revenues by around 200 billion forints ($933 million) this year which needs to be covered by either cutting spending or hiking some taxes.
Gyurcsany told public television on Wednesday that although Hungary would stay on path to reduce its budget deficit, none of its financial targets, including the budget deficit target of 2.6 percent of GDP, are set in stone.
(Reporting by Krisztina Than and Sandor Peto)