* Tax on financial transactions, phone calls to rise as of
* Govt says low CPI cuts revenue, tax hike to guarantee
meeting EU rules
* Banks to pay 7 pct levy on municipal debt assumed by the
* OTP, Magyar Telekom stocks lead losses on stock market
By Sandor Peto and Marton Dunai
BUDAPEST, June 17 Hungary's government raised
taxes on the mostly foreign-owned financial and telecoms sectors
on Monday to plug budget holes but also rattling investors who
have already experienced three years of unpredictable policies.
The new set of fiscal measures were a surprise. They
included lifting the current financial transaction tax and
raising existing charges on telephone calls and mining
royalties for what some analysts said was around 100 billion
forints ($459.68 million).
The government said the moves were needed to make up a
shortfall in the budget brought about because low inflation is
They will help Prime Minister Viktor Orban keep the deficit
below the European Union's 3 percent of GDP ceiling. Analysts
said they may also create room for him to spend ahead of
parliamentary elections next year.
Since he won in 2010 elections, Orban's policies have
included the nationalisation of private pension funds and taxes
on banks and selected business sectors. These have helped his
government avoid outright austerity and still cut the deficit,
while also retaining a lead over the opposition.
"The early summer austerity measures are ... making room for
late summer fiscal loosening measures in order to sweeten voters
ahead of elections in April 2014 while keeping the budget
deficit still below 3 percent," said Zoltan Torok, an analyst at
Many economists believe Orban's policies may consign Hungary
to years of bumping along with very low growth after a recession
last year, as they say he has scared off some of the foreign
direct investors whose cash is badly needed to fund a stronger
recovery in the export-driven economy.
Economy Minister Mihaly Varga said measures implemented
earlier this year to cut state spending may not be enough to
fully avert the threat of fiscal sanctions from Brussels because
38-year-low inflation levels cut tax revenues,
"One of the main causes of the measures is to ensure that
Hungary gets out (from the EU's excessive deficit procedure)
once and for all, and avert the threat that we get back into it
in a short time," Varga told a news conference.
The EU said it planned to end its excessive deficit
procedure against Hungary last month, lifting it off the budget
blacklist and acknowledging government efforts to cut the
deficit below 3 percent of economic output.
It did this despite earlier criticism over the imposition of
big windfall taxes on mostly foreign companies. The EU is
expected to make the final decision on ending Hungary's deficit
blacklisting later this week.
Even though the government formally taxes the financial
sector, blaming Brussels, banks have passed on most of the costs
from the financial transaction tax, which was introduced last
year, to their clients - households and firms.
Varga said the country's Banking Association had accepted
the government's proposals for the tax hikes. The group did not
immediately comment on the announcement.
In a separate draft bill submitted to parliament, the
government also said commercial banks, which already pay
Europe's highest bank tax, will have to pay a 7 percent charge
on troubled municipal debt that the government will take over
This measure alone will put at least 43 billion forints into
government coffers, as the state will assume 612 billion forints
worth of debt, much of it denominated in foreign currency, from
Banks must pay the 7 percent charge in forints by December
20 this year. If they want to get rid of the remaining stock of
around 500 billion forints worth of municipal debt, they can do
that by indicating a willingness to pay the levy on this
additional chunk as well, according to the bill.
Hungarian stocks fell on the announcements. The Budapest
Stock Exchange's main index fell one percent with
Hungary's biggest bank OTP shedding 2.3 percent while
telecoms firm Magyar Telekom lost 3 percent by 1232
GMT. The forint was largely unfazed while bonds firmed slightly.