As expected, the Hungarian parliament has approved by a large majority the controversial bank tax proposed by the government. It has also approved the provision enabling a greater number of businesses to benefit from the lowest rate of corporation tax.

Defending the new tax on credit institutions, Prime Minister Viktor Orban emphasized the need for the country’s banks to contribute to the costs of overcoming the economic crisis, maintaining that it is both “fair and necessary”. Given that the banks had caused the global crisis, it is perfectly normal that they should assist in remedying the situation, he argued.

Under the new law, banks will be liable to pay a special annual tax of 0.15% or 0.5% on their balance sum. The government is anticipating additional revenues of around HUF200bn (EUR690m) as a result of the levy. Orban maintained that Hungary will reach its 2010 deficit target of 3.8% of gross domestic product (GDP) by the end of the year, as negotiated with the International Monetary Fund (IMF). The IMF recently estimated the country’s deficit at around 4.1%.

Both the IMF and the European Union recently expressed their opposition to the government’s proposed tax, warning that it could serve to weaken the banks and to damage both the investment climate and economic growth. Underlining the need to implement further austerity measures, the IMF and the EU suspended negotiations with Hungary regarding the remaining instalment of aid set out in its EUR20bn agreement.

Other measures contained in the 29-point action plan approved by the Hungarian parliament include plans to grant more businesses the 10% rate of corporate tax, to cut public sector pay and to impose a ban on foreign currency mortgages. The government will also abolish a number of minor taxes.