Hungary Unveils Tax Cuts in Pledge to Honor Deal on Bank Burden

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Hungary announced cuts in banking and income taxes, pledging to honor an international agreement on alleviating the burden on the financial industry.

The cabinet will cut the special bank levy to 0.31 percent of total assets next year from 0.53 percent, Economy Minister Mihaly Varga said at a news conference in Budapest on Tuesday. The levy will be further lowered between 2017 and 2019, Varga said.

Varga is following up on a deal signed by Prime Minister Viktor Orban in February with the European Bank for Reconstruction and Development and Erste Group Bank AG, which promised a cut in the tax. Stocks have rallied on anticipation that smoother ties will replace five years of tensions, triggered by one of Europe’s highest banking levies and unilateral moves to support foreign-currency mortgage holders.

“We will fully keep the agreement with EBRD and Erste Bank, not to 100 percent but to 110 percent,” Varga said, adding that talks with the Hungarian Banking Association on cutting the bank tax were under way.

The Cabinet also plans to lower the personal income tax rate to 15 percent from 16 percent next year, costing the budget 120 billion forint ($431 million) in annual revenue, according to Varga.

OTP Bank Nyrt., the country’s largest lender, gained 2.3 percent to 5,751 forint by 4:06 p.m. in Budapest. The stock surged 47 percent since Feb. 9, when Orban announced the EBRD deal. Magyar Telekom Nyrt., the local unit of Deutsche Telekom AG, slid 3.8 percent after Varga said the cabinet doesn’t plan to lower special taxes on the telecommunications and energy industries for next year.

Pork Tax

The 2016 budget draft, which the government will discuss on Wednesday, targets a budget deficit of “close to 2 percent” of gross domestic product, an average inflation rate of between 1.8 percent to 2 percent and economic growth close to 2.5 percent, Varga said. The budget is based on a forint exchange rate of 308 per euro, he said.

The forint traded little changed at 298.11 against the European common currency.

The draft also expands tax breaks for families with at least two children and lowers the value-added tax on certain pork products to 5 percent from 27 percent. The total budget revenue impact of the planned tax cuts for next year will be 170 billion forint, Varga said.

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