BUDAPEST: When Hungary hit banks and other business sectors with crisis taxes two years ago, it sugared the pill by saying they were temporary. Now the refashioned levies are here to stay and risk souring investor sentiment towards the country further.
With the existing windfall tax on telecoms firms already under challenge in European courts, parliament approved on Friday a new charge on phone calls, effective from July 1, to help plug a budget gap in central Europe's most indebted state.
The government imposed the original taxes on banks, telecom and energy companies in 2010 as part of a campaign to cut the deficit while avoiding outright austerity. It said then that the levies would be scrapped from 2013, and the overall tax burden on businesses lowered.
But with the economy now facing recession and almost half a billion euros of European Union development funds under threat if budget targets are not met, Prime Minister Viktor Orban has opted to keep the levies, but in different and permanent form.
The telecoms tax and another planned new tax on financial transactions have drawn protests from banks and firms who say the government has broken its promises.
They have also cut short a brief period of optimism about Hungary after the European Commission gave its blessing to aid talks, rekindling what an EU diplomat described as "negative buzz" around the country.
"The main problem remains the lack of predictability and the optimistic mood that was there just a month ago is gone," said the diplomat, who spoke on condition of anonymity.
"These steps again raised concerns about the fiscal policy of Hungary, which will of course come up during the IMF talks. They (international lenders) also want to see predictability and consistency, which are lacking here to a certain point."
Hungary hopes to start aid talks with the International Monetary Fund in June on a loan from the Fund and EU to help avert a potential funding crisis. The country's borrowing costs remain high after years of controversial government policies, including the crisis taxes, which have made investors wary.
The Fund said again on Thursday that it is ready to start talks with Hungary on a funding deal once outstanding issues over central bank independence are resolved.
Analysts say the negotiations are likely to be difficult, however, as Orban will find it hard to accept the tough conditions and checks attached to an international credit line. ID:nL5E8G45NC]
"TAXING THE AIR"
The tax to be paid by telecoms firms should generate some 45 billion forints ($191.83 million) for state coffers next year, while the planned financial transactions tax, to be paid by banks, will raise at least 130 billion forints ($554.16 million).
The government says its aim is to shift away from taxing incomes and towards taxes on consumption and turnover.
But phone companies Magyar Telekom, Telenor and Vodafone have asked the government to withdraw the new tax bill to allow further talks, calling its approach "unacceptable".
Mihaly Patai, chairman of the Hungarian Banking Association, who also leads the Hungarian arm of Italy's UniCredit, told Reuters the financial transaction tax was a "slap in the face" for lenders, as the government had approved the plan just a day after agreeing to hold further talks with banks.
Rather than being focused on exotic futures or derivatives trades, the tax will affect a wide array of dealings from regular bank transfers to utility bill payments.
Patai said that unless the new tax is capped, it could wreck a banking sector that is already being squeezed as western European parents deleverage - hurting lending and growth - and could drive major corporate accounts abroad where it is cheaper.
He said banks would seek a compromise deal with the government before the tax is launched that would limit next year's extra tax burden to around 60 billion forints. Heinz Wiedner, head of the Hungarian unit of Austria's Raiffeisen said such erratic policymaking would harm Hungary's economy.
"One of the prerequisites will be to create a predictable, stable environment where people can have confidence that the right steps will be taken and banks are not treated only as cash cows," Wiedner told a conference in Budapest on Thursday.
Meanwhile customers are fearful the new levies will ultimately show up in their bills. "The question is what the next tax will be," said Orsolya Szakonyi, a doctor. "Will they tax the air?"
Comments
Comments are closed for this article.