BUDAPEST, Oct 13 (Reuters) - Hungarian Prime Minister Viktor Orban on Wednesday announced new taxes on the telecoms, energy and retail sectors for the next few years to help the government meet its budget deficit targets.
MARKET REACTION
At 1419 GMT, the forint traded at 273.20, a shade down from 273.00 before Orban spoke. Shares of Magyar Telekom fell about 4 percent and oil group MOL about 1 percent after the comments. Government bond yields at the long end of the curve rose by about 5 basis points, with 10-year yields trading at 6.74 percent 1425 GMT.
ANALYST COMMENTS
GYORGY BARTA, CIB, BUDAPEST
'It has been known to most market watchers that the government will rely heavily on revenue-side measures to prop up the budget. It seems that the real gist of the action plan will only be announced on Monday, we are very curious to hear about planned expenditure cuts (rumours of major layoffs in the state sector have already surfaced, despite the government's promise of 'no austerity moves'). A full judgment of the budget measures cannot be made responsibly until all the details are released, therefore we won't jump to hasty conclusions.
'Government officials, such as (Economy Minister Gyorgy) Matolcsy, have promised thorough structural measures. We have yet to see whether these materialise later on. The reaching of budget targets has become more secure, although the country may have to pay the price in terms of its short-term growth prospects. In the longer term, the personal and corporate tax measures seem growth-friendly, although also quite costly to the state.'
NIGEL RENDELL, EMERGING MARKETS STRATEGIST, RBC
'These higher taxes risk stifling growth. But they are in a tricky position; they desperately need to cut the budget to ensure credibility, and I don't think there are a great deal of options about. I would prefer a push to spending reductions rather than tax increases.
'(Markets) are expecting that (Orban) lives up to his word... If you do that by a mixture of spending and tax measures then people would be happy. I think they will be happier if there was more on the spending cuts then tax revenue side.'
STANISLAVA PRAVDOVA, DANSKE BANK, COPENHAGEN
'We are rather puzzled by this focus on sectoral taxation rather than general taxation. This is not good news for investor sentiment. Furthermore, we think that reform on the expenditure side of public finances would have been much more positive for markets. That said, these 'odd' sectoral taxes could raise some revenue and that is naturally positive from a public sector perspective, but hardly very reformist.
'Overall, this is not too impressive and should not be positive for the Hungarian markets, but on the other hand probably not something that is widely negative either.'
PETER ATTARD MONTALTO, NOMURA, LONDON
'Orban ...is refusing to take any austerity expenditure side measures and is instead undergoing revenue side contortions. He is cutting personal and corporate headline rates on the other but then taking back more tax through sector specific taxes on retail, telcos, energy, banks etc in order to stick to the -3.8 percent and -3.0 percent deficit (in 2010 and 2011). This is not credible fiscal policy, it is anti-growth, but it will likely allow them to meet the deficit targets. Markets must make up their mind if you can still like a country with anti-growth policies even if you are meeting fiscal targets.'
(Reporting by Sandor Peto and Jason Hovet; Editing by Hugh Lawson) Keywords: HUNGARY BUDGET/ (sandor.peto@thomsonreuters.com; +36 1 327 4744; Reuters Messaging sandor.peto.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
MARKET REACTION
At 1419 GMT, the forint traded at 273.20, a shade down from 273.00 before Orban spoke. Shares of Magyar Telekom fell about 4 percent and oil group MOL about 1 percent after the comments. Government bond yields at the long end of the curve rose by about 5 basis points, with 10-year yields trading at 6.74 percent 1425 GMT.
ANALYST COMMENTS
GYORGY BARTA, CIB, BUDAPEST
'It has been known to most market watchers that the government will rely heavily on revenue-side measures to prop up the budget. It seems that the real gist of the action plan will only be announced on Monday, we are very curious to hear about planned expenditure cuts (rumours of major layoffs in the state sector have already surfaced, despite the government's promise of 'no austerity moves'). A full judgment of the budget measures cannot be made responsibly until all the details are released, therefore we won't jump to hasty conclusions.
'Government officials, such as (Economy Minister Gyorgy) Matolcsy, have promised thorough structural measures. We have yet to see whether these materialise later on. The reaching of budget targets has become more secure, although the country may have to pay the price in terms of its short-term growth prospects. In the longer term, the personal and corporate tax measures seem growth-friendly, although also quite costly to the state.'
NIGEL RENDELL, EMERGING MARKETS STRATEGIST, RBC
'These higher taxes risk stifling growth. But they are in a tricky position; they desperately need to cut the budget to ensure credibility, and I don't think there are a great deal of options about. I would prefer a push to spending reductions rather than tax increases.
'(Markets) are expecting that (Orban) lives up to his word... If you do that by a mixture of spending and tax measures then people would be happy. I think they will be happier if there was more on the spending cuts then tax revenue side.'
STANISLAVA PRAVDOVA, DANSKE BANK, COPENHAGEN
'We are rather puzzled by this focus on sectoral taxation rather than general taxation. This is not good news for investor sentiment. Furthermore, we think that reform on the expenditure side of public finances would have been much more positive for markets. That said, these 'odd' sectoral taxes could raise some revenue and that is naturally positive from a public sector perspective, but hardly very reformist.
'Overall, this is not too impressive and should not be positive for the Hungarian markets, but on the other hand probably not something that is widely negative either.'
PETER ATTARD MONTALTO, NOMURA, LONDON
'Orban ...is refusing to take any austerity expenditure side measures and is instead undergoing revenue side contortions. He is cutting personal and corporate headline rates on the other but then taking back more tax through sector specific taxes on retail, telcos, energy, banks etc in order to stick to the -3.8 percent and -3.0 percent deficit (in 2010 and 2011). This is not credible fiscal policy, it is anti-growth, but it will likely allow them to meet the deficit targets. Markets must make up their mind if you can still like a country with anti-growth policies even if you are meeting fiscal targets.'
(Reporting by Sandor Peto and Jason Hovet; Editing by Hugh Lawson) Keywords: HUNGARY BUDGET/ (sandor.peto@thomsonreuters.com; +36 1 327 4744; Reuters Messaging sandor.peto.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.