Tim Gosling in Prague -

The banks may be one of the major contagion channels for Central and Eastern European economies in relation to the Eurozone crisis, but Hungary continues to squeeze the sector for revenue. The country's latest draft budget shows that the government plans to raise already high taxes on the banks over the next couple of years, risking a further slowdown in lending and investment.

Budapest's latest draft budget shows that the government plans to raise HUF355bn (€1.23bn) from the banks in 2013, with HUF283bn due from the new transaction tax and a further HUF72bn to come from the current windfall tax that the government is refusing to end early to make up for the new levy. With the windfall tax due to finish ahead of 2014, the document shows that Budapest has then pencilled in a 10% hike in revenues from the transaction tax, boosting income to HUF322bn. An appendix to the draft also shows expectation of higher proceeds from the new tax on the insurance sector as well in 2014, reports Reuters.

The government originally proposed to collect HUF130bn from the introduction of the transaction tax in 2013, but boosted that goal to HUF280bn in early June as it continues to seek to achieve fairly ambitious fiscal consolidation targets almost exclusively through raised revenues. Critics point out that spending cuts would provoke the ruling Fidesz party's core constituency just as polls show its popularity slipping. The next elections are due in 2014.

The Hungarian Banking Association has protested against the new financial transaction tax, and complained that despite the government agreeing to negotiate on the details of the new levy, it has broken numerous promises - in particular, it claims, an agreement to end the temporary windfall tax a year early in return for the permanent transaction tax. Introduced amidst huge protest from the banks that it was the highest levy on the sector in Europe when Fidesz came to power in 2010, the windfall tax has always been scheduled to drop by 50% in 2013, and the budget shows that the government fully expects it to run alongside the transaction tax.

Levente Kovacs, secretary-general of the bank association, claimed in early June that the imposition of a transaction tax without canceling the windfall tax would "annul" a December agreement between the banks and government that was designed to aid foreign-currency mortgage holders and boost lending in the economy.

Meanwhile, revenue from a new tax on the insurance segment - until now covered by the banking windfall tax - is targeted to rise HUF7.5bn from the original projection to HUF60bn, Bloomberg reports. A telecommunications tax that comes into effect next year should generate HUF44bn, according to the document.