A new piece of legislation submitted by ruling Fidesz and published on Parliament's website www.mkogy.hu says rulings of Hungary's Constitutional Court or the European Court of Justice could trigger targeted tax hikes to cover necessary extra spending, without specifying the financial sector. The new motion brings an unexpected twist in government policy, just after it announced late last week that it had asked for precautionary financial assistance from the International Monetary Fund (IMF) and the European Commission. The European Union is disputing several areas of Hungarian policy, including value-added tax regulations, a special tax on the telecoms sector, and state aid to national airline Malev, as well as the FX loan repayment scheme. The source said the new law was aimed at the banking sector. The government and banks have had a frosty relationship ever since the centre-right Fidesz party of Prime Minister Viktor Orban swept into power last year with a two-thirds majority that allows it to rewrite any legislation on its own. Hungary's banks turned to the Constitutional Court after Parliament passed a law in September to allow households to repay mortgage loans taken out in foreign currencies at highly favourable rates. The banks, which stand to lose hundreds of billions of forint on the conversions, have also asked the European Commission to weigh in on their behalf. Top officials at eight big banks have urged the European Commission to support them in the dispute with Hungary. The tensions had eased earlier this month when the banks and the government sat down to negotiate a new package to manage the nation's huge exposure to foreign currency mortgages. "If a decision of the Constitutional Court or the European Court of Justice Leads to state payment obligations for which the sum previously set in the budget law is insufficient a contribution must be charged to cover the common needs, exclusively and specifically tied to meeting this obligation," the Fidesz legislative proposal says. The proposal was in a package of amendments to the new Constitution, which takes effect on Jan. 1, 2012. In a surprise move last year, Hungary levied a special tax on the financial sector, worth an annual 187 billion forint ($820 million) in 2010-2012, to help plug budget holes. If the cost of FX loan losses were added to that, the tax could rise substantially, CIB Bank analyst Gyorgy Barta said. "To have the banks pay for the early repayments through taxes, they would need to raise the taxes in earnest," Barta said. "All this has provoked ire from the market as well as the IMF already, not to mention its impact on lending, and growth." "If they take this money away, it doesn't matter what label they put on it." After an eviction moratorium, the bank tax and a scheme to cap FX mortgage payment conversion rates temporarily, banks were not consulted on the early repayment scheme. Rating agencies earlier this month cited unpredictable government policy as a key reason they might cut Hungary's debt to non-investment grade. Hungary asked the IMF for assistance after more than a year without an external financing backstop but Orban said the country would not give up a "free hand" in policy. If the new motion clears a parliament vote, it means yet more unorthodox policy from Fidesz, 4Cast analyst Gabor Ambrus said. "If true, that would be pretty much a slap in the face of those who think a policy shift has taken place in Hungary," Ambrus wrote. "It would also mean additional credibility problems for the government.