Hungary Imposes New Taxes on Banks

Hungary’s stocks and currency fell after Prime Minister Viktor Orban’s government announced new taxes on banks and other industries to address its widening budget deficit. This move comes after Hungary was reprimanded by the EU for excessive deficits.

The government revealed that the fiscal deficit widened by 108 billion forints in June, reaching a cumulative 2.66 trillion forints ($7.3 billion) for the first half of the year. This exceeds the planned shortfall for the entire year, driven by increased debt interest payments.

Shares in OTP Bank Nyrt. dropped by 2.3% and the forint fell 0.5% against the euro following the announcement by Cabinet Minister Gergely Gulyas. The benchmark BUX stock index fell 1.3%, among the worst global performers on Monday.

The new measures include a tax on banks’ foreign exchange trades at a 0.45% rate and an increased transaction tax from 0.3% to 0.45%, effective from August. The government expects these measures to generate 400 billion forints.

Despite earlier promises to lower windfall taxes, the government will maintain current levels on banks, energy, and foreign-owned companies. The administration blames the economic challenges on the war in neighbouring Ukraine but remains committed to meeting the 4.5% deficit target for 2024.

The Hungarian Banking Association declined to comment on the new taxes. Meanwhile, Orban continues his international tour, labelled a “peace mission,” visiting Kyiv, Beijing, and Washington. Hungary holds the rotating EU presidency in the second half of 2024.

Orban’s officials have also increased pressure on the financial sector, criticising banks for not meeting bond purchase targets and threatening additional taxes on those profiting from the war.