A lower bank tax rate is set to be adopted as part of a tax package completed in autumn 2015, Minister for National Economy Mihály Varga told public broadcaster Kossuth Radio this morning.

Through the capital increase, the State of Hungary and the EBRD are to obtain 15 percent share each in Erste Bank Hungary, while Erste Bank commits to step up lending, as the Memorandum of Understanding (MoU) signed by the three parties yesterday reveals. It is also part of the agreement that bank tax revenues will be cut by HUF 60bn in 2016 and the tax rate will be reduced further in 2017-2019.

As the Minister underlined, the Government is expecting GDP growth to exceed 2 percent in 2016 and thanks to that fiscal revenues are seen to increase by HUF 200-250bn. Part of that amount could be used to offset lower bank tax revenues and help boost lending.

Currently, the Government is not planning to cut taxes in other sectors, but it does not rule out the possibility of reviewing these taxes in their present form later on, he added.

Mihály Varga also said that the Government of Hungary is to receive bank data from Erste until the end of March to have an overview of key figures and the purchasing price will be determined following a due diligence procedure by an independent audit company, scheduled to be completed by the end of March.

Responding to a question on similar offers by other commercial banks, the Minister said that only Erste Bank had come forward with such a proposal and the Government has welcomed it. Erste pledged to launch a EUR 550 million lending programme, and as the bank tax-to-total balance sheet ratio will fall to 0.31 percent as of 2016, the bank’s costs will be some HUF 60bn lower. However, he stressed that even so the Hungarian bank tax rate still remains “quite high”.

The Minister pointed out that lowering the bank tax does not pose fiscal risks, as the shortfall will be compensated by rebounding lending and the subsequent increase in jobs and investment.

Mihály Varga stressed that the MoU creates a new operational framework for the Hungarian bank sector and he stated that the Government undertook to “transfer all direct and indirect majority ownership stakes in Hungarian banks within the next three years.” The state of Hungary will delegate one non-executive member to the Board of Directors and to the Supervisory Board of Erste Bank and thus have an overview of the bank activities, but even more import than that, the presence of the Government will ensure that decisions will be in line with the long-term interests of the Hungarian economy.

(Ministry for National Economy)