The Hungarian Banking Association sees it is a negative development that the extra profit tax (windfall tax) introduced in 2022 as a temporary measure, for two years, has been extended to 2024, contrary to earlier commitments. The additional purchases of government securities expected in exchange for the reduction of the windfall tax will have a negative impact on the Hungarian economy, reducing banks' liquidity and the amount of credit they can lend to businesses to invest. The Hungarian banking sector is already one of the largest creditors of the Hungarian state and will remain so, with the stock of government securities held by banks doubling in the last 10 years to around HUF 11 000 billion. The extension of the temporary windfall tax also weakens the resilience of the national economy.
While the Hungarian Banking Association also expects inflation and central banking interest rates to fall significantly and credit demand to pick up, keeping the windfall tax rate unchanged in 2024 will lead to a reduction in the income of financial institutions and thus in the amount of credit they can lend. Recent crises have shown that the Hungarian economy needs a stable and liquid banking sector to sustain lending in challenging times like the current one, and thus help the economy recover from recession.
The further taxation of savings could represent a significant backward step in the self-care of households. The past period has brought about significant changes in the investment and savings market, with the vast majority of the population reducing their consumption due to inflation, whilst also placing stronger emphasis on saving and showing a growing desire to keep their money in various forms of savings.
The further taxation of household savings, and, at the same time, the encouragement of significant investment into government bonds, will distort competition and push out the Hungarian financial sector from the savings market. It will also restrict the right of customers to free decision-making, as it limits all options to access a wide range of savings products. Every new tax and financial burden will reduce savings in Hungary, which, in turn, will take away the resources required for lending. This seriously limits confidence in long-term investment and reduces the potential for growth in the securities market and the Hungarian economy in general.
In view of the negative economic impact of these decisions, the Hungarian Banking Association calls on the Government to review the measures as soon as possible and, if possible, withdraw them or not introduce them.
Hungarian Banking Association
1 June 2023