It’s seems to be final: there will be a financial transaction tax in Hungary

For a brief time certain countries in the European Union advocated the idea of a tax on financial transactions (the so-called trader tax). Initially, it was James Tobin, the Nobel prize-winning economist, who came up with the idea of taxing short-term foreign exchange transactions. But the European plan strongly supported by the German finance minister, Wolfgang Schäuble, was a different kind of tax. It would have taxed transactions between financial institutions. The idea didn’t receive any support in Europe, and the IMF wasn’t too crazy about the idea either. Out of the twenty-seven member states only three were wholeheartedly in favor of the introduction of such a tax. And because this tax would make sense only if it applied across the board, the idea was dropped.

It may have died in Brussels, but it was reincarnated in Budapest where György Matolcsy picked up the idea. On April 5 Matolcsy published a book review in Heti Válasz in which he went on and on about his unorthodox ideas on how to fix the Hungarian economy. Among other things, he mentioned the desirability of introducing a new tax on financial transactions. He was sufficiently vague on the details that it was difficult to figure out whether he was talking about the introduction of the Tobin tax, its Schäuble variety, or some uniquely Hungarian tax.

As one might expect, the tax will be uniquely Hungarian and will bear little resemblance to any previously discussed version of a financial transaction tax. As of January 1, 2013, it seems, Hungary will impose a new tax that is designed to shore up the budget, however modestly. Apparently the cabinet expects only 50 to 100 billion forints a year in additional government revenue.

So how will this new tax work? When Matolcsy first mentioned the possibility of a financial transaction tax everybody was thinking in terms of the Tobin tax. Tobin, by proposing a tax on short-term foreign exchange transactions, hoped to stabilize the increasingly volatile market. But the leaked Matolcsy plan has nothing to do with Tobin’s idea or with any other iteration of a trading tax. It seems that the cabinet is planning to impose the tax mostly on retail services, which goes against “the social interests Tobin hoped the levy would serve,” as Portfolio rightly pointed out. The so-called transaction tax can be viewed as a personal income tax if it is levied on deposits of an employee’s monthly pay check to his bank account. If the tax is also imposed on cash withdrawals from ATM machines or paying bills by “yellow checks,” then it is a new sales tax. (Yellow checks in Hungary function like money orders.) As a result, the poorest strata of society would have to carry the heaviest burden since these people are the ones who must spend practically all their earnings on maintaining themselves and their families.

The general feeling is that the introduction of this new tax that would produce at most only about 100 billion forints would be very expensive for the Hungarian economy as a whole. This tax will distort the behavior of the economic players. It will provide an incentive to use cash when the aim of the government should be just the opposite–to encourage the use of checks and credit cards to make financial transactions among individuals more transparent. The economy that is pretty gray right now will get even grayer. Some people might open bank accounts in the neighboring countries, Slovakia or Austria.

Money under mattress

Money under the mattress

It is also not at all clear what the European Union will say about this new tax. Hungarian analysts can’t make up their minds whether the introduction of such a tax would be unacceptable under European Union rules or not. Some Hungarian tax experts think that Brussels will not object. Although the new tax could be considered to be a kind of VAT, others think it escapes that categorization. However, Hungarian experts are often wrong when it comes to interpreting European Union regulations. One must wait until the European Commission decides.

This new so-called financial transaction tax has the blessing of Viktor Orbán. This morning on Magyar Rádió he said that his government wants to reduce payroll taxes and increase taxes on sales. He is convinced that this is “a radically new direction that is being watched by more and more countries.” Part of this new direction is “the financial transactional tax.” Again, he emphasized that the “old economic model that took root in the European Union is not working anymore. Hungary believes it needs to be renewed.” And naturally Hungary will the lead the way.

Orbán tried to calm nerves by pointing out that the new tax burden will be light, no more than 0.1%, but he declined to say more about the details. In any case, the projected increase in government revenues assumes compliance on the part of the population, and since when have Hungarians (or anyone else) willingly paid taxes when there was a way around them? The plumber fixed a toilet, was paid in cash, and didn’t give a receipt. In this transaction he was the only one who dodged the tax collector. Now, if the person whose toilet needs repair will be penalized if he pays in a way that’s traceable, he also has an incentive to pay in cash and not get a receipt. The plumber and his customer can collude to cheat the tax collector.

So, let’s hear it for an rise in the black and gray economy and a trip down memory lane to the days of Kádárism. If Viktor Orbán were ready to scrap the building of a couple of soccer stadiums the introduction of such a tax wouldn’t be necessary. But for the Hungarian prime minister these stadiums seem a great deal more important than the Hungarian economy or the well being of the country’s citizens.

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Member

I had very much the same thoughts tat Eva, when I heard about this new scam to grab money. Hungary should work on hard to make sure that all money goes into the banks, and reward people to use tracable payment methods.It is obvious that either Orban or Matolcsy uses their head for thinking. The most effective way to bring in money to the government’s coffer would be to bring the underground economy to light. People should be rewarded by generous tax deductions for payments that requires invoices (plumbing work, painting, car fixing, roof work, etc.). SO, what Matolcsy coughs up? A way to make sure that nobody wants to deal with banks. I think someone should start to investigate Matolcsy’s diploma work.

Eva Balogh
Guest

To Some1, this is so stupid that it boggles the mind. And it has nothing to do with political views.

An
Guest

This is stupid, and shortsighted, just like taking away the pension savings was. They are just going for a tax that is easy to collect. They need money, quickly. Little they consider the economic effects. On the long run, they may even lose tax revenue on this (by encouraging the black/grey economy).
As the government needs money badly, and OV is not willing to reconsider the flat income tax (which put a hole in the budget), we can expect some more “let’s take money from where we can take it easily from” schemes.

LwiiH
Guest
Everyone was thinking that the government would come in and grab money from their accounts.. well here is the scheme to do it. The Tobin tax would have hit banking that can best be described as throwing gum into a machine and then watching it try to work. Instead of decreasing volatility it would have increased it as traders would then have to cover the additional costs. 1% tax requires a 1% swing in price just to break even on a trade. And these guys were talking serious amounts of %tages. Some brainiac in the UK government thought it would be a good idea to charge VAT on transactions though now I think someone with a big bat has gone in and talk sense to them. This would have destroyed the banking industry in London. So anything inspired by Tobin is just going to be a bad. So, OV can’t hit the banks with an extra special tax because the last time he did that it hurt. There are no more pensions to rob. Tiered VAT is unacceptable in the EU (and a equally bad idea) so lets go rob peoples bank accounts this time.. and isn’t this what everyone… Read more »
Member

I must agree with LwiH. THis is exactly what everyone was worried about, that Matolcsy and Orban will go after the bank accounts, and so they did. I do understand that when you use an ATM machine or pay similar ways you have to pay to the bank a service charge, but I never heard of this kind of a fee. You can negotiate with your bank on various accounts and service options, but this is above that. This is a direct tax on people’s earnings, simply because they are using safe methods for dealing with their money. What a shame…

Member

In 2013 they will start out-phasing the bank levies. From 200 BHUF the revenue will drop to 100 BHUF. This is about the amount they expect from the “banking VAT”. So the fuckers basically make the people pay the bank levies.
They love this because it’s easy to implement. They just screw the banks with the tax and let them implement the system to charge the customers. So again this is just the reincarnation of the same old bank levy.
My guess is that for the average inhabitant of Planet Hungary it’s still not worth it to keep cash in the pillows. So they will want the employers to transfer the wages to their accounts. By the way who pays the fee when it’s an intra-bank transaction? I think it’s always the sender. So if I’m understanding this right since the cash withdrawals are also taxed there is no way to escape the tax unless you get your wages in paper money. Ergo it wont really force cash transactions. Or am I missing something?
Incompetent idiot bunch.

GDF
Guest

To those of you, who think that this will force people into a cash based life, to evade the tax: you are ignoring the unique Hungarian thinking based on the language – I am sure it excludes such shenanigans…

LwiiH
Guest

@Mutt, wire transfer fees in the EU can be shared or assumed by the sender. Every where else they can be attributed to the receiver. I could rant about the stupid EU rule but…. oh, I guess I just started.
@GDF, this will force people into cash… and further hit the banks. I know how I plan on reacting.
I wonder about foreigners taking money from bank machines from foreign accounts? I guess they will be paying this tax, errr fee also?
Last question, has anyone with a brain thought about this? I mean seriously thought about this?

Guest

Another case of stealing from the poor to give to the rich …
And we have just adjusted to the regular way of paying everything here through the bank account – well, we can still remember “The Good Old Days” when I would bring the needed money (cash)in Deutsche Mark and everybody would gladly accept payment this way …
Ten years ago people would even give you 10 % more than the official bank rate – like in those days 30 years ago when we went on holiday in communist Yugoslavia …
So again ? Cash is King ?

LwiiH
Guest

@wolfi, in OV we trust, all others pay cash….

Member

I think the significance of this is that Mad Matolcsy and his *unorthodox* ideas have been finally let loose again by the Fidesz propaganda dept after three or so months of him being gagged.
He was locked away for a reason and that reason was that the IMF was never in a million years going to take such a nutter seriously let alone lend him money. With their proposed assistance now disappearing into the ether it is now time to apparently to let the crazy ideas roll again. To what purpose though is the question?

petofi1
Guest

Isn’t it time to redo our thinking?
Everyone assumes that the government is ‘good-willed’ but incompetent: the logic of the actions say otherwise.

Odin's Lost eye
Guest
The man is not as mad as you think. His boss, the Viktator, knows that he has to keep the rich happy as they could cause him problems whilst the poor cannot. Any there are many more poor than there are rich so he can screw far more out of poor. In the Viktator’s mind the poor are lazy, no good wasters who deserve nothing. Apart from that they are used to being cold and hungry and he, the Viktator, needs money for his all gold plated baths for his new football stadiums. I have a feeling that this tax is not a new idea both it and the tax on data transfers (via electronic means) were dreamed up by some pre Thatcherite Government in the UK. Brussels stamped on both of them but for what reason I do not remember. I will agree that more and more countries are watching Hungary’s financial antics because they may well cause the rest of the E.U. harm etc. In addition it will turn and split Hungarian society even more with the not so well off living in a cash and barter only society which will reduce the overall tax take. I know… Read more »
lutra lutra
Guest

If this mad scheme goes through then I look forward to seeing prices everywhere quoted in forint and Euros, with those working in Europe sending cash (instead of wire transfers) back to their family, and companies setting up subsidiaries in Slovenia, Austria or Slovakia so they can pay salaries in Euros too.

Member
LwiiH : “I wonder about foreigners taking money from bank machines from foreign accounts? ” As I have mentioned above ATM and similar transactions always had some charges attached to them, so they will not notice any difference. What is interesting that my father took a second look on his due payments that he always paid in the post office (yellow check), and figured out that even now companies have around 200-300 forints transaction fee on their invoices. Well, you should know my father, he swung into action and started to make phone calls, and found out that if he personally takes the money to pay his bills (telephone, Tv, cell, etc.) he does not have to pay the fees each time. Well, he is retired and always looking for ways to occupy himself, so he decided that from now, he will have a day a “paying-day” when he will deliver the payments personally. THe interesting thing is that in developed countries, what banks and companies are trying to do is make online and through the bank payments as easy as they can. WHy? Because they figured out something that Matolcsy and Orban cannot, that it is a huge saving… Read more »
petofi1
Guest
@Some 1…:..and the savings can be passed onto customers..: In Hungary? Are you kidding? They’d swallow that cash sooo fast.. Have you ever heard of another country where you have to PAY the traffic violation PRIOR to going to court? Another brilliant Hungarian novelty: you see, once paid, that money is now government ‘income’. Just try and win your court case. This is all surmise: I don’t know what the actual statistics are for people who go to court. Of course, I wouldn’t trust them anyway. While I’m on traffic violations…I’ve been waiting for two years to see if the great Tarletan, or the Victator, will finally do something about the absolutely atrocious ripoffs of parking fines in Budapest. (A story: in the dead of winter, just after a snowfall, I parked just off Kiraly utca, and bought my parking stub. One hour later, I came back to find a red package on my car. It was a fine for…wait for it….120,000 forint (!) for parking in a disabled spot. Of course, the sign was around the corner, and the usual painted sign on the pavement was completely covered by snow. Two visits complete with pictures were not enough to… Read more »
Minusio
Guest

It probably helps to always remind ourselves of Victor Orbán’s own logic. He worked for eight years on a plan on how to get back to power and stay there. From his point of view this was very successful. All he needs to stay there is to avoid state bankruptcy. He only didn’t factor in that at some point the EU and the IMF would oppose his “restyling” of Hungary and deny him further loans. So he has to squeeze out the Hungarian population, sparing his rich cronies, of course.
A few things about his character could be spotted during his first premiership and in his time in opposition. How firm his grip on Fidesz was already at that time became clear when he lost two elections and wasn’t sent packing. What is becoming more and more obvious now is his increasing denial of reality. His attacking the EU is becoming increasingly bizarre, even if his attacks are primarily meant for domestic consumption.
To me this looks like a psychiatric defect. But madmen are dangerous.

GDF
Guest

LwiiH:”LwiiH : “I wonder about foreigners taking money from bank machines from foreign accounts? ” As I have mentioned above ATM and similar transactions always had some charges attached to them, so they will not notice any difference.”
Yes, they will. Usually when you withdraw the money from an ATM, the potential charges are listed and the customer is requested to agree. Until now these were: your own bank’s charge and the ATM’s owner’s charge. Now a third item will appear: the tax (unless the new law will hide it).

Kingfisher
Guest

Without knowing the details, it is hard to know what to think. If it is a sneaky little tax that one barely notices (ten forints on a 10,000 forint cheque), then I can’t see it having much impact on the economy or population at large. But when were Hungarian government ever subtle when it comes to tax? So, it wouldn’t surprise me if the percentage is ten to a hundred times the figure Orbán hinted at.
I think the real objection to it is that the government is creatively trying to raise money where there is a far safer and wiser alternative – cutting its profligate spending. The trouble with improvised taxes is that no one has actually worked out if they can be efficiently collected. Banks will presumably have to rewrite their computer software to keep track of the government’s money. But what happens in the post office? While a utility bill have the additional charge included? And who collects it, the electricity company or the post office? It absolutely wouldn’t surprise me if it transpires that when someone pays a yellow cheque, they have to pay the tax with a second yellow cheque!
Time will tell.

Minusio
Guest

Addendum: Several times Pester Lloyd carried stories that hinted at the really big heist still being in the pipeline. It would mean that state employees would be strongly “convinced” to buy government bonds. In addition, Orbán ominously mentioned several times that he is thinking of putting people’s savings to use “in the national interest”.
When did they say part of the IMF loan will be due for repayment?

Kingfisher
Guest

The National Bank has repaid the IMF as per schedule this year.

Member

“state employees would be strongly “convinced” to buy government bonds”
“Peace Loans” (bekekolcson)! What a deja vu! In 1950 Matyas Rakosi, the Hungarian Stalin, did the same thing.
http://news.google.com/newspapers?nid=336&dat=19500928&id=m6lSAAAAIBAJ&sjid=nH8DAAAAIBAJ&pg=5149,6176009
(English)
http://www.rev.hu/sulinet45/szerviz/dokument/bekekolcson.htm
(Hungarian)
I remember in the 60s when my grandpa was checking the numbers every week. We have never won a “filler” (penny). It was probably a scam.

petofi1
Guest

These sheep that we call Hungarian citizens (–funny how everyone I talk to says that Hungarians are sheep-like; but
let a little, jewish woman say that and the whole Hungarian
community explodes–) anyway…back to the main point: will
ordinary Hungarians (city and country) be able to notice that the new taxes and Hungary’s growing debt are the direct result of Orban’s “sovereignty fight”?
The opposition parties are doing a terrible job at getting the news out and connecting the dots…

LwiiH
Guest

A chunk of the IMF loan comes due May/June time frame. They’ve got that covered. There are more repayments due this year.

Kirsten
Guest

petofi1: “Everyone assumes that the government is ‘good-willed’ but incompetent”
That there could still be people out there who believe that this government is good-willed is remarkable. What exactly testifies to their good will? The fact that they want to save Hungary from serfdom through a return to the Middle Ages? The fact that they never stop suggesting incompetent policies even when faced with the numerous failures of their first two years of government? What is such “good will” for?

Paul
Guest

Looking at this logically and cold-bloodidly, Orbán’s master plan is pretty much on track. The only significant fly in the ointment is the possibility of the EU enforcing serious changes to his new laws.
But they can only do that if Hungary needs the IMF loan. So, all OV has to do is to survive without the IMF loan.
And it looks like he can do that.
So, that’s it really. He’ll win the next election, the economy will stagger along, the poor will be too busy surviving to trouble him, the well-off will be looked after. The EU will moan, but be able to do very little. And those who don’t like it will be off.
Of course there’s no long term future in ‘running’ a country like this, but it will last long enough to see out OV’s political career. And that’s all he cares about.

Member

@Mutt Damon: “I remember in the 60s when my grandpa was checking the numbers [of Bekekolcson] every week. We have never won a “filler” (penny). It was probably a scam.” I totally forgot about this until you mentioned it. I remember too my grandma checking that. Woow, now memories are flooding back.

GW
Guest

I believe it’s important to call this tax what it is, a regressive tax on deposits and withdrawals, and not a financial transaction tax, because it has nothing significant to do with finance and everything to do with taxing income on deposits and sales on withdrawals.

Kingfisher
Guest

Paul, I don’t see that Orbán will be able to finance Hungary from the markets for another two years. Hungary is already paying an untenable amount on its debt, and the situation has only stabilised because no one can really believe that he is not going to strike a deal with the IMF. They are thinking “he can’t be that stupid.” The moment it becomes clear he is that stupid (and this is going to transpire within the next three months), Hungarian debt will be unsellable, the currency will weaken significantly, throwing Hungary back into a debt spiral. At that point, he will have to react and the austerity measures that he will have to implement will be far worse than anything experienced thus far. And the votes won’t forgive him.
The idea that he can stave off catastrophe by grabbing the national bank reserves is a fantasy. And most analysts assume Orbán realises this, which is why the markets have not yet lost patience with him.

LwiiH
Guest

@ Kingfisher, not can he not grab national reserves, under current EU rules it would be illegal to do so.

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