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UPDATE 3-Hungary adds transaction tax rebate to 2017 stimulus mix
December 1, 2016 / 10:01 AM / a year ago

UPDATE 3-Hungary adds transaction tax rebate to 2017 stimulus mix

* Plan follows cuts in payroll, corporate taxes, minimum wage hike

* Rebate offered for 20 pct rise in company lending over 2 years

* Analysts see world-beating stimulus in 2017 pre-election year

* Local bank shares post modest gains

* Government to upgrade 2017 GDP growth forecast -minister (Adds upgrade of 2017 growth forecast)

By Gergely Szakacs

BUDAPEST, Dec 1 (Reuters) - Hungary will offer banks that substantially boost lending to companies a tax rebate, the government said on Thursday, as Prime Minister Viktor Orban rolls out “world-beating” stimulus measures ahead of an election in 2018.

The proposal to waive some financial transactions tax payments follows cuts in payroll and corporate taxes for companies and hikes in the minimum wage to combat weaker third-quarter growth and deteriorating competitiveness.

Underscoring the need for action, Economy Minister Mihaly Varga said economic growth would come in below the government’s 2.5 percent projection this year and is now seen in the 2 to 2.5 percent range depending largely on fourth-quarter consumption.

“We will table a modification saying that for banks whose corporate loan stock increase exceeds a given percentage, we see a possibility of foregoing part of the financial transaction tax,” Varga told reporters on the sidelines of a conference.

The minister said the rebate, which would carry an upper limit, would be available to banks that increase their corporate loan stock by at least 20 percent.

The ministry said banks would need to show that kind of loan growth in two years compared to end-2015 levels to be eligible for the rebate, which could not exceed 80 percent of the original tax obligation, or 300 million forints.

The tax had been due to raise 202.5 billion forints ($690 million) in 2017.

Varga later told a parliamentary committee hearing that 2017 economic growth could come in significantly higher than the government’s earlier 3.1 percent forecast, but did not provide a specific estimate. He said inflation could also accelerate.

At 1440 GMT, Hungarian bank shares were marginally stronger, with OTP Bank up 0.3 percent and smaller rival FHB rising 0.2 percent, off earlier session highs.

The proposed measure comes as the central bank, run by strong Orban ally Gyorgy Matolcsy, prepares to phase out a massive Funding for Growth Scheme that provided 2.46 trillion forints of cheap funding to tens of thousands of small firms.

Even before the latest announcement, economists at HSBC said Hungary’s fiscal stimulus, estimated at 1.5 to 2 percent of gross domestic product, would probably be the largest globally for the 2017 pre-election year.

“Economic growth in Hungary is forecast to accelerate to around 3 percent year-on-year by mid-2017, arguably with upside risks as the government targets to achieve ‘3-5 percent GDP growth as early as in 2017’ with the help of its aggressive fiscal stimulus package,” HSBC’s analysts said.

In October, the government cut its 2016 budget deficit target to 1.7 percent of GDP after a big September surplus.

$1 = 294.78 forints Editing by Catherine Evans

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