Are you sure?

Monetary Council warns of bank tax’s adverse affects

While welcoming the government's efforts to maintain fiscal equilibrium, the Monetary Council of the National Bank of Hungary (MNB) warned on Monday that a large extraordinary banking tax could have an adverse affect to growth both the short and the longer run. Rates were not on the agenda neither discussed at the Monday meeting.

The government's plan to continuously fiscal equilibrium are welcome as preserving investor confidence is of extraordinary importance for the country, the Monetary Council said in a statement published after Monday's non-rate-setting meeting.

The Council saw, however, "a cause for worry if measures taken to reinstate fiscal discipline could contribute to the building up of other macro-economic risks."

The extraordinary financial sector tax of the size planned by the government could reduce the capability of the Hungarian banking system to attract capital and to lend which could significantly cut growth in the short and the longer run too, the council warned.

The tax could weaken the domestic banking system's capacity to collect funding and thereby the stability of the Hungarian economy, the council said.

The statement came after the government submitted a bill on the planned extraordinary tax to Parliament on Friday. Banks are to pay 0.45% of their adjusted total assets, insurance companies will pay 5.2% of their premium revenue excluding reinsurance revenue, and other financial-sector companies will have to pay 0.028%-6% of net revenue, net interest revenue or managed assets, depending on the nature of the company as the extraordinary tax this year, the bill reveals.

The government expects to collect HUF 120 billion (on top of an already budgeted HUF 13 billion from a special bank fee) from banks, HUF 36 billion from insurers and HUF 30 billion from other financial sector companies of the extraordinary tax this year.

The combined HUF 200 billion the government intends to raise as extraordinary financial sector tax at least this year and the next compares to combined after-tax profit of banks, leasing and insurance companies of HUF 267 billion last year. (MTI-ECONEWS)