Hungary's economy minister ruminates on new taxes

By bne IntelliNews April 6, 2012

bne -

Hungary's Economy Minister Gyorgy Matolcsy unveiled more revenue raising brain waves on April 5, suggesting the government could introduce a financial transactions tax, and raise Europe's highest VAT rate of 27% by another 3 percentage points. The suggestions will do little to settle the nerves of investors wary of the country's "unorthodox" policies.

Whilst the idea of a financial transactions tax has been floated by many EU countries, talk of new levies in Hungary are bound to shake investors given its recent track record. Matolcsy is already credited with being the architect of Europe's highest bank tax and a foreign-currency mortgage relief scheme that has inflicted heavy losses on banks. Both of those moves spooked the markets, and have contributed to the long-winded dispute over starting talks with the International Monetary Fund (IMF) and the EU on a loan programme, whether the two sides admit it or not.

However, Prime Minister Viktor Orban's government has studiously avoided introducing the sort of harsh austerity measures implemented by many other countries with far more robust economies - Poland and the Czech Republic for example. Budapest has concentrated instead on raising revenue via "unorthodox" policies. The hope that a deal with the IMF would temper such unpredictable action is the main driver for the bounce seen in Hungarian assets since the start of the year.

Writing in the weekly Heti Valasz, Matolcsy said: "There is no transaction tax in the financial system, while we shift the balance of taxation towards turnover and consumption, we must introduce a financial transaction tax." Adding to the uncertainty for investors, the economy minister failed to elaborate on the timing or size of the tax.

The minister also said he would prefer to have five different sales tax rates, ranging from 5-25%, and with a top rate of 30%. That headline VAT rate would signal a 3-point rise from the current 27%, which is already the highest in the EU, points out Reuters.

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