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Hungary Cancels Bank Tax Repeal

by Ulrika Lomas, Tax-News.com, Brussels

23 October 2012


Hungary has cancelled a plan to halve the tax on banks' balance sheets next year, and has announced a further tax rise on financial transactions in order to avoid EU sanctions.

Economy Minister Gyorgy Matolcsy has announced a plan to cut the deficit next year by a further HUF367bn (USD1.7bn). Without any further fiscal tightening, the EU expects Hungary’s deficit to reach 3.9% of output in 2013 as opposed to the government’s 2012 target of 2.7% of gross domestic product.

Under the plans, the government is scrapping a previous proposal to reduce the special tax on banks in 2013. Currently, the rates are 0.15% on balance sheet totals of up to HUF50m, and 0.53% on balance sheet totals of HUF50m and over. In May, the government announced that the tax would be cut by half from January 1, 2013, and abolished altogether from 2014. However, the government now intends to maintain the bank tax at current rates, although it is not clear how long for.

This comes just weeks after the government announced an austerity package of a similar size, though slightly less focused on tax rises.

The Hungarian government has been strongly criticized for its insistence on tax hikes to reduce the deficit. Prime Minister Viktor Orban’s policy has traditionally been to defend Hungary’s flat tax regime and to avoid sharp spending cuts to reduce the deficit.

In particular, critics say that Orban’s policy is hampering growth. They suggest that spending cuts are a better way to achieve sustainable deficit reduction while keeping a growth-friendly environment.

Hungary is currently in negotiations with the IMF as the country seeks EUR15bn (USD19.7bn) in financial assistance. However, Budapest has shown persistent reluctance to implement spending cuts and has preferred piecemeal tax rises instead.

On October 5, the government lowered its economic growth forecasts from +0.1% to -1.2% this year, and from +1.6% to +1% in 2013.

TAGS: tax | business | Hungary | banking | offshore | tax rates

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