bne -

Just a day after announcing Hungary will not cut its windfall bank tax by 50% next year as promised - a move officials say won't make any difference to the economy because the banks aren't lending anyway - Economy Minister Gyorgy Matolcsy on October 18 promised to only halve the country's extraordinary bank tax in 2014, a German official claims. That will further alarm the furious banks, given that the charge was originally planned to end in 2013.

Markus Soeder, finance minister of the state of Bavaria, told Reuters that his Hungarian counterpart had committed to the tax reduction during a meeting in Vienna, which was also attended by the Austrian finance minister. Austrian and Bavarian lenders are among the biggest foreign financial institutions active in Hungary.

The claim comes just a day after Matolcsy, outlining a raft of revenue-raising measures to shore up the state budget, provoked a storm of protest from the country's banks by announcing that the tax - the highest of its kind in Europe - would not be cut in half in 2013 as originally planned. The minister also said that a new financial transactions tax planned to start in January will be doubled.

The Hungarian Banking Association had earlier hoped to see the extraordinary levy scrapped with the introduction of the FTT, but after long talks had reached an unhappy compromise to help support lending into the slowing economy in return for promises that the original schedule would be honoured.

The Association met the news that the 2013 tax would not be reduced with fury, stating: "The measures announced by the government - if passed by parliament - endanger predictable financing to economic players and all their elements reduce the lending ability of banks." The suggestion that the levy on the sector will last beyond the end of next year is likely to be greeted by a similar repsonse.

Raiffeisen Bank International CEO Herbert Stepic called the abandonment of the agreement to halve the levy next year as a "low blow," but reiterated that the biggest lender in CEE does not plan to leave the country, Reuters reported. He declined to tell reporters at an investment conference how much the move would cost the Austrian bank, saying only it had paid €42m in Hungarian bank tax in 2011.

Indifference

However, the government has brushed the complaints off with alarming indifference given the economy is sinking deeper into recession. Prime Minister Viktor Orban rejected the banks' criticism, saying it will "not really hurt the economy" because lenders are already deleveraging.

Asked whether the halving of the bank tax will only be delayed or the levy will be phased out completely in 2014, Antal Rogan, head of the Hungarian Parliament's Economic Committee, told Hungary's TV2 on October 18: "We have never considered eliminating the bank tax; we regard the bank tax as part of the Hungarian tax system, and, in my view, the fact that banks have to pay tax is an accepted notion in Europe too," reports portfolio.hu.

He said it is not a good thing that the bank tax will need to remain intact, but reiterated that as the banks were not lending over the past few years anyhow, the levy in its current form will not really hurt the Hungarian economy. But it will take a lot of profit from the banks, he added.

Rogan also stressed that it will be the banks' profits that will decline, not Hungarian's income, thereby allowing social peace to be maintained. It also means the budget deficit can be kept low and public debt reduced, he claimed, and called for both the IMF and the EU to respect that.

However, the IMF, with which Budapest is in negotiations over a bailout, is already likely to further delay the next round of talks having demanded that Hungary end its series of erratic tax measures and implement structural reform and spending cuts to help pull its fiscal position into shape.