Hungarian government launches ruthless tax panacea to save the yearly budget

The Hungarian government has unveiled an adjustment package to address budget deficits. Significantly increased transaction taxes are expected to raise substantial revenue. Who will pay the price of these changes?

Tax panacea to save budget deficit

As Portfolio reports, the Hungarian government’s recent announcement of an adjustment package was inevitable due to budget deficits for both this year and next. A key element of this package is a significant increase in the transaction tax, anticipated to raise almost HUF 100 billion (EUR 254 million) this year and nearly HUF 250 billion (EUR 635 million) next year. While banks collect this tax, the exact distribution of the burden remains unclear.

Despite banks having paid the transaction tax for over a decade, the pass-through mechanism means corporate customers predominantly shoulder the cost, with retail customers contributing less than a quarter of the total revenue. Though there have been occasional suggestions to modify the levy, the Hungarian government remains reluctant to alter this lucrative source of revenue, which continues to generate hundreds of billions annually.

The changes

From 1 August, transactions already subject to the transaction tax will face increased rates: the general levy will rise from 0.3% to 0.45%, with the cap per payment transaction doubling from HUF 10,000 (EUR 25.4) to HUF 20,000 (EUR 50.8). Cash withdrawals will see the tax increase from 0.6% to 0.9%.

Essentially, the normal transaction tax will increase by 50%, while larger transactions will see a 100% increase. Additionally, starting 1 October, transactions involving currency conversion will incur an extra levy, raising the tax from 0.3% to 0.9%, capped at HUF 20,000 (EUR 50.8). Physical currency exchange will also see its tax rate align with the general level of 0.45%.

What does the Hungarian government expect from this?

The Hungarian government anticipates that the general levy increase will generate HUF 85 billion (EUR 216 million) and the additional conversion levy HUF 7 billion (EUR 18 million) in 2024, with the latter expected to reach HUF 30 billion (EUR 76 million) in 2025. Initially projected to bring in HUF 348 billion (EUR 884 million) for 2024, the new measures are expected to boost total revenue to HUF 440 billion (EUR 1,117 million). For 2025, including the increased levies and assuming continued cash flow growth, transaction taxes could yield over HUF 600 billion (EUR 1,524 million).

Should customers fear extra fees?

Some may fear that the banks would try to pay this extra fee by passing it on to customers. However, the government does not allow fee increases to be passed on to residential customers and has banned any increase in fees or discounts in this area until the end of 2024. In addition, banks might pass this fee (or at least some percentage of it) to their corporate clients.

According to 24.hu‘s expectations, the Hungarian government’s announced measures are expected to impact Hungary’s largest listed companies significantly. For MOL, the surplus tax rate will increase from 1% to 2.8% of 2022 revenue. OTP anticipated a gross extra profit tax of HUF 13 billion (EUR 33 million) for 2024, which could have been reduced to HUF 6.5 billion (EUR 17 million) due to increased government bond holdings, but was set at HUF 10 billion (EUR 25 million). However, in 2025, OTP’s extra profit tax could rise to HUF 25 billion (EUR 63 million).

Further tax changes

As ATV reports, Minister of National Economy Márton Nagy announced at a press conference that there would be no air traffic tax next year. At another press conference where he presented proposals to boost the electric car market in Europe, Nagy revealed that starting January 2025, telecoms and pharmaceuticals will no longer have to pay the excess profit tax. However, he justified the continuation of the Hungarian government’s excess profit tax for banks.

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