The FINANCIAL -- The head of
Hungary's central bank slammed a plan to extend a new financial
transactions tax to the bank, insisting this would hamper its
independence, in a letter published Thursday.
"The proposed amendment would breach the principle of central bank independence," Andras Simor said in a letter to Economy Minister Gyorgy Matolcsy published on the website of the central bank (MNB).
"In particular, it would result in an infringement of institutional independence by influencing the conduct of the bank's monetary policy," he said.
This "raises the concern of a conflict between the proposed amendment and... the constitution," he added.
Prime Minister Viktor Orban announced this week a one-billion-euro ($1.26 billion) plan to reduce unemployment, to be funded by a financial transactions tax from 2013 onwards.
The idea was to impose a levy on all financial transactions, money transfers, withdrawals and deposits, made by companies or individuals.
But the government now wants to subject the MNB to the tax as well, a move Simor already described on Monday as "illegal, dangerous and incomprehensible."
Simor estimated in his letter that under the tax, the central bank would have to pay 100-120 billion forints (350-420 million euros, $433-520 million) in 2013, doubling its predicted losses for the year.
And while commercial banks could pass the tax on to their clients, the central bank could not afford to do so.
"This would jeopardise price stability and the stability of the financial system, and, consequently, it would be contrary to the statutory primary objective and basic tasks of the MNB," Simor said.
Budapest informed the European Central Bank on Tuesday of its plans but the Frankfurt-based institution has yet to respond.
Central bank reforms have already caused a rift between Orban's government and the European Union and International Monetary Fund, hampering talks over a crucial credit line of 15 billion euros ($20 billion) for Hungary.
As EUbusiness reported, Hungary has since amended the law, which critics said limited the bank's independence, and parliament was to adopt the changes on Friday.