They also demanded that the government, which has an overwhelming majority in parliament, respect democratic institutions, which they say are being trampled.

The rally is part of a series of protests against Prime Minister Viktor Orban's government, launched by unions under the name "D-day" referring to the day the Allied forces landed on the beaches of Normandy in World War Two.

The demonstrators, who rallied outside parliament in the centre of Budapest, shouted "Orban go away" and held up banners demanding fair wages and job security.

"The aim of the D-day action is to fight for democracy and social security," Peter Konya, head of the union of armed forces, which represents servicemen and other, uniformed personnel, told Reuters ahead of the protest.

"The mistaken economic policy of the recent period, the abolition of progressive taxation have resulted in the government having to take emergency measures now in order to be able to plug budget holes," he said.

He also said the new constitution, which Orban's ruling Fidesz party passed in parliament in April, would allow the government to dismantle Hungary's democratic institutions.

The law, which will take effect as of January, will help Fidesz cement its powers beyond the end of its term in 2014, analysts have said.

Orban's government, which swept to power with a two-thirds parliamentary majority at 2010 elections, declared a "war on state debt" and pledged to keep the budget deficit below 3 percent of gross domestic product in a bid to fend off risks stemming from the euro zone debt crisis.

It used unorthodox fiscal steps to keep the budget on track this year, such as windfall taxes on banks and an effective re-nationalisation of $14 billion in private pension assets.

But next year the economy is expected to slow, which has prompted the government to hike the top value added tax rate to 27 percent from 25 percent to boost revenues, sharply eroded by tax cuts due to a flat income tax system launched this year.

Public support for Orban's centre-right Fidesz party declined further in September to 22-24 percent but the opposition which is weak and fragmented has failed to capitalise on Fidesz's losses so far.

Two surveys showed on Friday that most Hungarian voters are uncommitted to any political party. The next parliamentary election is due in 2014.

"They changed the tax system in a way that ordinary people are worse off now I believe at a time of crisis this is an unforgivable sin," said Veronika Szabo, 36, who said she lost money due to the tax system which she says favours the rich.

"They just cannot do everything with their two-thirds majority," said Zoltan Gyarmati, 47, a former policeman who is on an early retirement benefit which he now may lose.

The government passed legislation earlier this year to cut or even scrap pensions granted via early retirement and said it would push ahead with the plans.

"It is morally unacceptable that strong, professionally competent people who are able to work get pensions while they could work for many more years serving the community," the government spokesman said in a statement on Friday.

Copyright Reuters, 2011