Investors rattled as Hungary unveils $2.19 bln windfall tax plan
Hungary on Thursday announced new windfall taxes worth 800 billion forints ($2.19 billion) on "extra profits" earned by banks, energy companies and other firms to plug a budget gap, hitting Budapest stocks and rattling investors.
Hungary on Thursday announced new windfall taxes worth 800 billion forints ($2.19 billion) on "extra profits" earned by banks, energy companies and other firms to plug a budget gap, hitting Budapest stocks and rattling investors. Prime Minister Viktor Oban needs to raise revenues to bolster government finances after his pre-election spending spree and caps on energy bills, which helped him win a landslide victory last month.
The plan for the new taxes on banks, insurers, large retail chains, the energy industry and trading firms, telecoms companies and airlines is reminiscent of Orban's tax regime used to fix the budget after he swept to power in 2010. The taxes aim to reduce the budget deficit this year and next, targeting a reduction in the budget shortfall to 3.5% of GDP in 2023.
In response, Hungary's blue-chip stocks slumped, led by oil and gas group MOL and OTP. MOL fell nearly 7%, OTP fell nearly 3% and Magyar Telekom stocks dropped almost 5% as of 1330 GMT. Some 60% of the deficit adjustment will come from spending cuts at ministries and by postponing some public investments, Economic Development Minister Marton Nagy told a briefing on Thursday. The new taxes, which will be in addition to existing levies, will make up the rest.
"We will raise the required revenue primarily from the special taxes on extra profits," Nagy, a former central bank deputy governor, said. Nagy said banks will have to contribute 300 billion forints per year on top of their existing taxes, while energy companies -- mostly MOL -- will have to pay 300 billion forints, with MOL bearing the brunt of the burden.
He said MOL was making big profits by using cheaper Russian Urals crude at its refineries. Nagy's comments on MOL come as Hungary continues to push back on European Union plans for an embargo on Russian oil, demanding energy investment before it agrees to a ban.
NOT A GOOD MESSAGE Orban said the new windfall taxes would be applied in 2022 and 2023.
Some of Orban's previous temporary special taxes are still in effect and are putting a squeeze on profits across a wide range of sectors. As a result, the latest tax hit on Hungary's corporate sector has unsettled investors.
"These steps do not send a good message in terms of investor confidence ... as an investor you look at which sector will outperform, and you cannot find any because when you have a sector that outperforms, the government takes the profit away," said Bence Jozsa, an analyst at brokerage Equilor. "This is what we can see now, and that's why stocks are plummeting."
Last week, Nagy told a parliament hearing that the government wanted to boost the share of domestic ownership in further key strategic sectors. Over the past decade, businessmen close to the government have acquired large chunks of the bank sector, media, and energy companies. Nagy mentioned food retail chains, and insurance companies, and telecoms where "domestic ownership must become dominant."
Asked about those comments, Nagy said the new taxes and the government's plans in those sectors were not linked, adding however, that "It was the personal decision of these investors" how long they wanted to remain in the Hungarian market. The new tax on banks will be levied on net interest income and fee and commission income, while a turnover tax on retail chains with an annual turnover worth more than 100 billion forints will rise to 4.1% from 2.7%, Nagy said.
The banks and companies affected declined to comment ahead of the announcement. ($1 = 365.7200 forints)
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