Mihaly Patai, the chairman of Hungary?s Banking Association, resigned on Tuesday, marking another twist in the long-running battle between prime minister Viktor Orban?s government and the country?s banking sector.
The move comes after parliament in Budapest passed legislation on Monday which reneges on an earlier pledge to halve Hungary?s controversial bank tax next year, while in addition doubling the new Financial Transaction Tax (FTT), set to be imposed from January 1, to 0.2 per cent of transactions.
The government says the measures are needed as part of a tax package required to keep Hungary?s budget deficit below the 3 per cent threshold set by the European Union. The government fears failure to keep to this limit could see Hungary lose European funding.
Patai, who is also head of UniCredit Bank in Hungary, last month gave warning of his intention to resign if the government went ahead with its latest plans, which nullify an agreement made last December that had seemed to establish a new era of cooperation between the banks and the government.
The banking association said in a press statement at the time that it was ?shocked? by the government?s latest proposals.
?The problem is not the resignation, which is symbolic, but the reasons behind it. The fact that the bank tax remains, contrary to the agreement, and the transaction tax is introduced, all together means an awful situation for the commercial banks,? Laszlo Akar, vice president of the Budapest-based GKI economic research institute.
Akar, who was a state secretary in Hungary?s finance ministry in an earlier Socialist government, said: ?Quite clearly the commercial banks? activities will diminish further, probably quite significantly. This is bad news for the banks and the economy as well.?
GKI has cut earlier moderate growth forecasts for 2012 in the wake of the latest tax moves, and now predicts Hungary?s economy will stagnate next year.
Gyorgy Matolcsy, Hungary?s economy minister, told a meeting of the American Chamber of Commerce in Budapest last month that Hungary?s ?successful fiscal consolidation is over? and that he was ?optimistic ? for next year?s turnaround when it comes to GDP growth.? Last week he declared: ?The chances are good that growth will be above 1 per cent. ?
Related reading
Orban: doing his bit for Hungary, beyondbrics
Hungary: fiscal policy?s latest twist, beyondbrics
Hungary: we are doing okay (sort of), beyondbrics
Hungary: fiscal package pleases markets ? but what about the IMF?, beyondbrics
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