Hungarian Prime Minister Ferenc Gyurcsany on Wednesday said his minority government would have to resign if opposition parties managed to push through a proposed bill on a flat- tax, dpa reported.
"If parliament were to adopt a tax law with the support of the opposition parties and opposed by the Socialists, it would end our governance," he told foreign journalists at a press conference.
"There are two important acts: the budget act and the tax act. If those are not in the hands of the government, it means that the government must not stay in office," he continued.
Gyurcsany's Hungarian Socialist Party this week began an era of minority government after the junior Alliance of Free Democrats (SZDSZ) withdrew from the coalition following a disagreement over the speed of economic reforms.
Analysts say the hamstrung government will struggle to pass legislation and that further reforms necessary to cut the budget deficit and eventually adopt the euro are dead in the water.
Small conservative opposition party the Hungarian Democratic Forum has announced it will try to push through a flat tax aimed at bringing Hungary more in line with its regional neighbours such as Slovakia and boosting competitiveness.
However, Gyurcsany said he considered this situation very unlikely as he does not expect a flat tax bill to gain the support of the main opposition party Fidesz, which currently commands around two-thirds of the vote in polls.
"Anyone who knows the details of the taxation in Hungary, knows also that it is extremely difficult and almost impossible to introduce a flat tax," he said. "I am sure Fidesz would never support proposals which would take away ten per cent from low-income families - it would destroy its popularity."
The SZDSZ first announced it would quit in late March after the Socialists backtracked on plans to introduce private capital into the health insurance system, effectively ending the reform path embarked upon two years previously.
Gyurcsany abandoned the reforms after losing a referendum on healthcare charges and tuition fees, a defeat that was the last straw for a party struggling with appalling popularity ratings brought on by the unpopular austerity measures.
While the reforms cut the budget deficit from a massive 9.2 per cent of gross domestic product (GDP) in 2006 to 5.5 per cent in 2007, they also forced up inflation and slashed growth.