Investors rattled, Hungary’s blue-chips plunge on windfall tax plan

By Krisztina Than and Gergely Szakacs

BUDAPEST (Reuters) – Hungary’s blue-chip stocks slumped on Thursday, with oil and gas group MOL and OTP leading losses after Budapest said it would impose windfall taxes on banks’ and companies’ “extra profits” to plug a budget gap.

Prime Minister Viktor Orban’s announcement late on Wednesday that his government will “oblige banks, insurers, large retail chains, the energy industry and trading firms, telecoms companies and airlines to pay a large part of their extra profits into two state funds” rattled investors and recalled memories of similar taxes Orban had used to fix the budget after he swept to power in 2010.

Some of those previous temporary special taxes are still in effect and squeezing the profits of a wide range of sectors, again boosting instability for investors, analysts said.

Orban needs to rein in a swelling budget deficit and prevent a marked slowdown in the economy while inflation is expected to accelerate into double digits in coming months.

His government is due to announce details of the measures at 1230 GMT. The banks and companies affected declined to comment ahead of the announcement. The central bank also declined to comment.

“The temporary sectoral windfall taxes do not affect manufacturing companies,” Foreign Minister Peter Szijjarto said on Thursday, adding that Hungary still offered “the most competitive investment environment in Europe.”

But MOL shares were down close to 9%, OTP fell 4.2%, trimming earlier even sharper losses, and Magyar Telekom stocks dropped almost 6% by 0950 GMT.

Orban said the new windfall taxes would be applied in 2022 and 2023. Some of his earlier special taxes — like a tax on bank transactions — have become a lasting part of Hungary’s tax regime and banks have passed on the costs onto clients.

The new taxes will raise revenues for the budget, which has a big deficit after Orban’s pre-election spending spree and caps on energy bills which helped him win a landslide last month.

But they signal instability for investors.

“These steps do not send a good message in terms of investor confidence … as an investor you look at which sector will outperform, and you cannot find any because when you have a sector that outperforms, the government takes the profit away,” said Bence Jozsa, an analyst at brokerage Equilor.

“This is what we can see now, and that’s why stocks are plummeting.”

Last week, Orban’s new minister for economic development Marton Nagy told a parliament hearing that the government wanted to boost the share of domestic ownership in further key strategic sectors. Over the past decade, businessmen close to the government have acquired large chunks of the bank sector, media, and energy companies.

Nagy mentioned food retail chains, and insurance companies, and telecoms where “domestic ownership must become dominant.” These are some of the sectors to be affected by the new taxes, which will squeeze companies’ profit margins.

(Reporting by Krisztina Than and Anita Komuves; Editing by Jane Merriman and Bernadette Baum)