The Hungarian Minister of National Economy Gyo?rgy Matolcsy announced the new taxes on October 17, saying that the taxes are intended to bring the country's budget deficit to below 3 percent of GDP.
Other measures that the government will introduce on January 1 next year include a tax on utility companies infrastructure, a reduction in local business tax benefits mainly for wholesalers and energy companies, and higher taxes on employee benefits.
The EU estimates Hungary budget gap will widen to as much as 3.9 percent of economic output in 2013. Hungary risks losing EU development funds if it fails to keep the budget shortfall below the Eurozone limit of 3 percent of gross domestic product.
The move will likely have a negative effect on Hungarian banks' profits and the management fees investment banks charge their clients. Chinese investors with assets in Hungarian banks are urged to contact the banks to determine likely losses from the new taxes.
Investors with assets in other European banks are also advised to contact their banks to determine any likely impact on their wealth, as over half the assets in Hungary's banking sector are foreign-owned. The biggest banks in Hungary include local subsidiaries of Austria's Erste Group and Raiffeisenbank, Belgium's KBC Bank, and Italy's Intesa Sanpaolo Banking Group and UniCredit Group.
The plight of Hungarian financial institutions has been worsening under a populist government that has blamed banks for the country's economic problems since the financial crisis in 2008.
Last September, the government introduced a law allowing borrowers to repay foreign-currency mortgages at below market rates. Mortgages denominated in foreign currencies were popular in Hungary before 2008 because borrowers could get low interest rates on them. After 2008, however, the Hungarian currency plunged in value, and homeowners faced rapidly rising monthly payments, which led to the government move mandating that banks allow repayment of foreign-currency mortgages below market rates.
The antibank and antifinancier spirit in Hungary means that the country already has Europe's highest tax of bank transactions, and that may increase in the future. Banks say the new taxes are counterproductive and will drive capital to other countries.
In a statement released on October 17, Hungary Bank Association said it was hocked that the government reneged on its pledge to cut financial institutions' tax in half and increase the tax on bank transactions. The measures endanger banks lending capacity, the redictable financing of the economy, and a recovery from a recession, it said.
Hungary is the largest destination for Chinese investments in Central and Eastern Europe, and bilateral trade volume China and Hungary hit a record high of more than $9 billion in 2011, up 6.2 percent year-on-year.
