Thursday, May 26, 2005

Taxing times for Hungary

The Hungarian forint has weakened in the past week or so over concerns about Hungary’s ballooning budget deficit, and the casual manner in which new Finance Minister, Janos Veres, has been treating the matter.

Anyone looking for more on Janos Veres might enjoy the article / comment at Hungarian analysts grade FinMin “C”

The weakening Forint is bad news for all those people persuaded by banks to take out mortgages and debt in €uros; the repayments are rapidly becoming more expensive. I doubt that the risks of taking on debt in a foreign currency have really been properly explained to customers – banks in this part of the world engage in practices that they wouldn’t dare try out in say Germany or the UK. The banks need far more supervision to prevent them miss-selling financial products, and overcharging customers; bank charges in Hungary have risen dramatically in the past five years and are nothing less than daylight robbery – customer focussed banking it isn’t! I would add that €uro denominated mortgages are also widely sold in many of the Central European EU member states.

Personally I don't share the view that the Forint will bounce back - I think the Forint could easily break the band within which it trades against the €uro and go as low as HUF280 to the €uro – it is currently trading at around HUF255.

Following on from my last post about budget deficits I think that investors, foreign and local, are likely to be less than enamoured of the latest proposals on tax to come from the cash strapped Hungarian government.

The Hungarian government will levy a 4% tax on capital gains, dividends, exchange rate gains and income stemming from the sale of tangible assets and from the letting out of properties, government spokeswoman Boglár László announced on Wednesday. Interest revenue will remain untaxed, Lászlo added.

All proceeds from the tax, officially a health contribution payment requirement, will go to the National Health Fund. The upper annual limit of the tax, to be introduced on 1 January 2006, would be set to HUF 400,000.

Opposition party Fidesz commented the government's planned move as an introduction of a new tax. László said the government expected an extra revenue in the order of HUF 10 billion.

From Portfolio Hungary @ Hungary plans tax on capital gains