Hungary's government plans to raise revenues from a planned new financial transaction tax to 322 billion forints ($1.4 billion, EUR 1,13 billion) in 2014 from 283 billion earmarked for next year, adding to the burden on its heavily-taxed bank sector in an election year.
Revenue from an insurance levy will rise to 60 billion forint annually from 52.5 billion forint over the same period, a draft of the budget through 2016 on Parliament’s website shows. A telecommunications tax that comes into effect next year should generate 44 billion forint, according to the document.
An appendix to next year's budget draft also shows the government, which has levied Europe's highest bank tax over the past three years, is counting on higher proceeds from a new tax on the insurance sector as well in 2014.
The government originally proposed to collect 130 billion forints from the transaction tax in 2013. It boosted that amount to 280 billion forints last week to cover public spending and keep the deficit below the target agreed with the EU of 3 percent of economic output.
Hungary is Central Europe's most indebted nation. The economy is expected to slide into recession this year, and analysts have said the continued heavy tax burden on banks would curb lending and hinder a recovery next year.
The tax also keeps investor nervous after two years of unorthodox policies which included a government scheme that allowed households to repay their foreign currency mortgages at well below market rates, incurring huge losses for banks.
Hungary must keep its deficit below the EU's ceiling to escape the 'excessive deficit procedure' it has been under ever since joining the 27-member bloc in 2004.
Austerity measures needed to rein in the shortfall have undermined support for Prime Minister Viktor Orbán's right-wing government, which is also seeking an international financing backstop to cut its high borrowing costs.
The government is in talks with lenders over special taxes. The amount of revenue the planned 0.1 percent transaction levy will accrue depends on whether an income ceiling is imposed, whether an extraordinary 60 billion-forint bank charge is scrapped next year and on the willingness of banks to boost lending, Economy Minister György Matolcsy said June 14. Hungary's Bank Association has protested against the new financial transaction tax. The imposition of a transaction tax without canceling the special 60 billion-forint charge would “annul” a December agreement between banks and the government to aid foreign- currency mortgage holders and boost credit, Levente Kovács, the association’s secretary-general, told Hungarian daily Népszabadság in an interview published June 9. As well as revenue from the transaction tax, the draft budget envisages collecting 72 billion forint through the extraordinary charge next year, including payments from financial-services companies other than banks, compared with 187 billion forint in 2012.
The government could face difficulties in collecting the new tax as the domestic settlement system will introduce intraday bank transfers from July and switch to the Single Euro Payments Area (SEPA) standards, daily Napi Gazdaság said on Wednesday.
This would allow banks to manage forint accounts and settlements abroad, which could prompt bigger companies to relocate their money transfers outside Hungary to avoid paying the tax on transactions, the paper added.
Source: Reuters; Bloomberg