Hungary may yet raid private pension schemes, industry experts warn
HUNGARY - Hungary's new government may yet return to recently shelved plans to raid the country's private pension schemes to help finance public debt, according to industry figures.
Earlier this week, Viktor Orban, the new prime minister, outlined his government's crisis management plans.
However, Orban made no mention of widely leaked proposals to nationalise the country's HUF2,700bn (€9.6bn) in mandatory private pension savings to help meet budget-deficit targets agreed with the IMF and the EU as part of the country's autumn 2008 bailout.
An investment banker who advises the party on economic affairs said a full nationalisation of pension fund assets had been considered.
"For a while, it really looked like the silver bullet that would solve everyone's problems," he said, adding that opposition from the EU and IMF had scotched the plan.
But many in the industry questioned whether Orban's alternative - a windfall tax on financial institutions designed to raise HUF200bn a year over the next three years - would yield enough revenue for the government to meet its 3.8% deficit target.
Erika Marsi, deputy chairman of the industry-funded International Banker Training Centre in Budapest, said: "Nowadays, the question of where you book your revenues or profits is almost a technical question.
"Banks are likely to take steps to minimise their exposure to the tax."
Others have expressed concerns that the knock-on fall in lending that could result from the tax would hit Hungary's recovery.
After two years of contraction, the country's economy finally grew by 0.1% over the first quarter of this year, and prolonged low growth could delay fiscal stabilisation.
Ilona Juhasz, secretary general of Stabilitas, the umbrella group representing Hungary's private pension schemes, warned the idea raiding private pensions could be resurrected if the banking windfall tax failed to deliver promised revenues.
"We don't think they have forgotten this idea forever," she said, adding that Stabilitas had not been consulted over the proposals, which were not made public.
Governments in Hungary and elsewhere have turned to private pension assets to shore up public finances in the past.
Hungary's previous government allowed those aged above 52 and the already retired to opt back into the state social security system, while Argentina nationalised private pensions two years ago.
The Hungarian measure saw 133,000 people and HUF90bn return to the state sector.
The economic programme Orban announced on Tuesday included expensive proposals for a flat income tax, reduced corporate tax rates and measures to buy out home owners with foreign-currency-denominated mortgages, who have been hit hard by falls in the forint.
Last year, Orban said he intended to pay for tax cuts by extracting IMF and EU support beyond the €20bn loan the country received 18 months ago.
But at a meeting in Brussels last week, José Manuel Barroso, president of the European Commission, scotched this proposal.