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May 12, 2016

Investor-friendly Hungary to cut bank taxes

Hungarian officials promise a warm reception for investors and point to reductions in the bank levies as evidence

Hungary has launched a new charm offensive, pointing to internationally acknowledged improvements in the banking sector as evidence of a more investor-friendly climate, reports the Financial Times.

Hungarian officials promise a warm reception for investors and point to reductions in the bank levies as evidence.

“Hungary is performing well, our growth figures are better than expected, legislative change is reducing and we are reducing sector-specific legislation — all of this puts Hungary in better shape,” said Ágnes Hornung, state secretary at the Ministry for National Economy.

The new attitude marks a radical turnaround. Foreign investors bore much of the burden of fiscal adjustment since 2010. The banking sector lost about 500 billion HUF in 2014, partly due to the controversial bank tax, but also due to compensation for “unfair charges” paid by customers.

Foreign media companies faced a 50 percent levy on advertising revenue. That has now been rescinded following complaints from the European Commission that it constituted a “political weapon”.

International lenders still express concern about the “adverse business environment” that weighs on foreign investment. Sceptics claim that relief for lenders is hardly surprising given that Hungarian investors, including the state itself, now dominate the sector.

Zoltán Török, head of research at Raiffeisen Bank Hungary, told the Financial Times that “the bank tax is a unique case in my view but the government probably intends to use [its reduction] to project a more investor-friendly image. At the same time, it’s true we are seeing less changes to the tax regime — things are becoming more predictable.”

In the IMF’s view, the bank tax cuts are welcome but a report published in late April urged Budapest to go further to improve the business climate and “reduce the regulatory burden, enhance policy predictability, and limit state involvement in the economy”.

Hungarian officials claim a new commitment to reducing the scale of unpredictable and unfavorable taxes and regulations is already bearing fruit. Robert Esik, president of the Hungarian Investment Promotion Agency (HIPA), says the agency’s activity levels reflect a recovery in investor interest.

In recent months, economic growth within Hungary has improved dramatically. Unemployment figures are down, FDI numbers are up and the state has implemented an extensive regeneration project across Budapest and Hungary.

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