Tim Gosling in Prague -

The Hungarian government is working on changes to the planned financial transaction tax that will exempt the central bank from the levy, local press reported on August 7.

While the report by Magyar Nemzet newspaper failed to reference its sources for the information, it is a well known for its close government connections. It quoted several officials as suggesting that revenues from central bank operations could be removed from the 2013 budget since the European Central Bank had blasted the plan, saying that it impinges on the independence of the Magyar Nemzeti Bank (MNB).

Under the changes, which may be completed by the end of next week, the cabinet will implement spending cuts to replace an estimated HUF120bn (€432m) in revenue from applying the tax to central bank operations, reports Bloomberg. The economy ministry failed to confirm that the government was planning to exempt the MNB from paying the levy, Magyar Nemzet said.

However, hints that Budapest could back down multiplied as the ECB's message was backed up by the IMF as it opened talks on a loan programme with Budapest in July - which came as a surprise to no one. The independence of the MNB became the pivotal issue in the final weeks of thrashing out a date to open the talks. MNB Governor Andras Simor had also kicked up a big stink about the plan.

Some cynical observers have suggested that Budapest's plan to extend the tax to the MNB was a ruse. The move was always going to provoke stiff resistance from the IMF and EU. Now Prime Minister Viktor Orban's administration can claim to have offered a significant compromise to the negotiation process.

Going further, some would then suggest that this is a double bluff by a government that still has little enthusiasm to agree a deal with the international lenders at all. Under this scenario, the performance is intended to be convince the markets that the government is working to secure a bailout in order to relieve the pressure on Hungarian assets.