The Hungarian Government intends to introduce starting 2013 an unified tax on insurance companies, by merging and transforming taxes previously levied on insurance companies, as part of its Szell Kalman Plan 2.0, a package of new reform measures. The estimated financial outcome of this operation is of HUF 15 billion per year. Thus, profitability of Hungarian insurers will be further affected, probably even in a stronger manner than in the current context.

By adopting this new plan, the cabinet wants to convince the European Commission that it can reduce the budget deficit to below the EU ceiling (3.0% of GDP) in a sustainable way, hoping that this will prevent the EU executive from freezing Cohesion Fund commitments for the country from 2013.

According to data published by the Government, the cabinet intends to maintain the budget balance on the revenue side mainly by five new tax measures. These are the following:

1. Financial transaction tax (from 2013, HUF 130-228 billion per annum);

2. Telecommunications services tax (HUF 30 billion in 2012; HUF 52 billion from 2013);

3. Maintaining and extending the income tax levied on energy producers (HUF 55 billion per annum);

4. Unified tax on insurance companies (HUF 15 billion per annum),

5. Introduction of reverse charge VAT in agriculture (HUF 10 billion in 2012, HUF 15 billion in 2013).

In addition, several reductions in the budgetary spending as: reduction of pharmaceutical subsidies (estimated revenues, HUF 10 billion in 2012 to HUF 40 billion in 2013), of budgetary institutions' expenditures (estimated revenues, HUF 10 billion in 2012 to HUF 44.7 billion in 2013), of central subsidies to metropolitan public transportation (estimated revenues, HUF 10 billion from 2013), elimination of central subsidies to the Research and Technological Innovation Fund (estimated revenues, to HUF 25.2 billion from 2013).

According to G?bor AMBRUS, economist at 4Cast in Sofia, quoted by portfolio.hu, the new plan "suffers from the same shortcomings as its 1.0 version: significant implementation risks and no sight for better growth prospects." He also noted that the plan does not bring an EU/IMF loan agreement any closer.

"In our view, besides the fact that these taxes will add to inflation, they will once again cement Hungary's investment adverse environment, and they will hit back on potential growth. The big elements of the programme as such fail to address key competitiveness issues and fails to achieve a sufficiently significant reduction of the size of the state," AMBRUS said to portfolio.hu.

He also warned that "significant implementation risks remain", mentioning for instance the road toll tax, which has been in the air for years now, without any progress given the investment and regulatory difficulties linked to its implementation. AMBRUS also has doubts about some of the other measures - like saving HUF 40billion in drug subsidies in 2013. "No government in the past has been able to put an effective and lasting break on drug subsidies, and elections are coming in 2014. Similarly, savings worth HUF 90billion from the budgets of local governments due to centralised administration and management also look excessive and would need a lot of work to gain credence."

Albeit the EconMin says that in exchange for these new taxes the sector based taxes will be phased out from 2013 as originally promised, "Hungary's growth potential will remain under pressure: the v2.0 plan still relies too strongly on tax increases and contains too much execution risks to the expenditure cuts."