Kester Eddy in Budapest -
The new Hungarian government's windfall tax on financial institutions is unnecessary and the argument for its existence - namely that it's needed to combat a "budget crisis" - is "simply false," Peter Oszko, Hungary's former finance minister, claims in an interview with bne.
Viktor Orban, the Hungarian prime minister whose centre-right Fidesz party swept to power in April, announced the new "temporary" tax on June 8 as part of his 29-point action plan to "create a new economic system." The tax, designed to raise HUF200bn (€715m) this year, is to be levied on banks, insurance companies and other financial market players, based on their 2009 financial figures. No details have been released as to how the tax would be calculated for the next two years of its "temporary" duration.
Despite protests from financial institutions that the tax will place an unfair and disproportionate burden on the sector - and ultimately cost jobs - Orban has repeatedly stressed the tax is non-negotiable in terms of the sum to be raised, since this income is needed "to combat the budget crisis" and keep Hungary's deficit for this year on target at 3.8% of GDP. This argument is a continuation of the Fidesz line, pursued since the start of this year, that the previous Socialist-backed government (in which Oszko was finance minister) had hidden the true figures of the state budget.
But in an interview with bne, Oszko disputed the reasoning behind the tax, insisting that "the greater part" of any current crisis has been self-inflicted. "When we left office, there were some [potential discrepancies] which we calculated amounted to a maximum of 0.3-0.5% of GDP [over the deficit target]. But we handed over a precise calculation and policy description, which included all necessary measures to manage that risk and keep the deficit target," he says.
While these measures were not very difficult politically, they nonetheless required a disciplined economic policy. "For instance, we recommended continuing spending restrictions and savings at [state railway company] MAV, but now the new government is doing the opposite, re-opening [loss-making] railway lines," he said.
It is these measures that have created any current "crisis" in the budget, Oszko insists. "The cut in corporate tax amounts to at least HUF70bn this year, and the extension of the gas price compensation more than HUF10bn. Of course, MAV will now spend more than planned," he says, adding that the result of these moves amounts to "at least 0.5%" of GDP.
Such increases in expenditures, plus promises to establish a fund to rescue households struggling with foreign exchange-based loans, "show why it is no longer enough to simply maintain the policies that we established and handed over," he says.
"So you can see that the banking tax, or at least the larger part of it, is to support unnecessary [budgetary] expenditure that serves the political objectives of the new government... While we cannot say that all the deviation [in the budget] is self-created, the biggest part is, and the real risk they [the Fidesz government] inherited could have been managed easily without the banking tax," Oszko claims.
Meanwhile, Hungary's independent insurance brokers are also protesting against the tax, arguing that the legislation was drawn up without consultations, and if passed without amendment, will force the industry to pay taxes that equate to three times their net profits. "The burden on independent brokers, many of which are family businesses, will create clear problems for them to continue functioning and survive," the brokers said in a press release, seen by bne and due to be issued later Friday.
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