Hungarian PM defends controversial bank tax

(BUDAPEST) - Hungarian Prime Minister Viktor Orban defended his controversial plans for a special bank levy aimed at replenishing state coffers Thursday just as the tax was put to parliament for a vote.

"The tax is fair and necessary because it serves the interests of our country's citizens," Orban told the 386-seat assembly ahead of the vote.

The tax, part of a package of measures drawn up to keep Hungary's public deficit at 3.8 percent of gross domestic product (GDP), was almost certain to be passed as Orban and his centre-right Fidesz party hold a two-thirds majority in parliament.

However, the project has come under fire not only from banks, but also the International Monetary Fund and the European Union which believe it will harm the investment climate and hit growth in Hungary's still fragile economy.

Under the plans, banks will have to pay a 0.45-percent tax on their total net assets while insurers pay a levy of 5.2 percent on total net premiums.

"It was the banks that caused the global (financial) crisis, so it's normal that they should help resolve it," the premier argued. "Banks can't be treated as some sort of sacred cow. Taxing them is not a taboo."

Orban, who swept to victory in elections in April, hopes the tax will raise 650 million euros (830 million dollars) in additional revenues to plug the gap in the public finances.

The IMF and the EU, however, say its positive effect would be only short term and it will have a negative impact on the investment climate and economic growth in due course.

The tax was one of the main sticking points in talks between Budapest and the IMF and the EU at the weekend on a fresh credit line, which ended in no agreement.

Since then, Orban has said that Budapest is no longer interested in further financial aid from the IMF, which along with the EU, afforded Hungary a 20-billion-euro standby credit facility in late 2008.

"Three years have passed (since then) and the agreement will expire in October. So there's no talk of suspending or breaking it. It is simply that the agreement will run out in October," Orban said.

The premier said Budapest would now focus on talks withe EU, "because like all other EU countries, Hungary has an obligation to keep its deficit below 3.0 percent."

Hungary would find it easier to hit this EU limit than some other member states whose deficit ratio currently stands at 7.0-8.0 percent or even higher, Orban said.