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The more than 7,000 billion forints (EUR 18.2 billion) of uncommitted funds in household accounts could represent a huge revenue shortfall for account holders in the current inflationary environment. The government has therefore decided to introduce a four-pillar package of measures to reduce the government’s interest expenditure and improve its self-financing capacity, while preserving the real value of household savings.
As a first step, the government has decided that banks should inform their customers about the investment opportunities in residential government bonds,
showing how much additional interest income customers could have earned over a one-year period if they had kept their savings in different government securities instead of current accounts.
As a second measure, in order to make tax-free residential government bonds even more attractive, the government has imposed a social contribution tax of 13 percent on top of the interest tax on financial instruments subject to interest tax from July 1, 2023.
For institutional players, the government gives banks the possibility to reduce their extra profit tax payment obligation if they increase their long-term government bonds.
Finally, for investment funds, the government expects the share of securities in the assets held in securities funds to reach 60 percent, to invest no more than five percent of assets in debt securities other than government securities denominated in forints, and to invest no more than 20 percent of assets in securities and real estate funds in the share of discount treasury bills in liquid assets.
Based on currently available data, there have been a number of impressive results in the government bond market and the savings market since the measures were introduced.
They have led to a significant reduction in bank deposits, which have been channeled into bond funds and government securities.
Changes to the rules for investment funds have created significant demand in government bond auctions in recent months, leading to a surplus issuance of discount treasury bills of HUF 280 billion by the end of July. Investment funds increased their holdings of government bonds by nearly HUF 320 billion in a single month, in June.
In June 2023, households reduced their low-interest deposits by HUF 275 billion, while increasing their holdings of government securities by almost the same amount.
In conclusion, the Ministry of Economic Development found that the increase in demand for government securities has not only directly but also indirectly improved the government’s ability to self-fund, reducing government interest expenditure, while also preserving the real value of household savings. In addition, the measures have contributed to a more informed choice by households regarding their savings, as citizens have turned to higher yielding assets. The government continues to encourage the public to be informed and to invest their savings in high value investments.
Via MTI, Featured photo via Pixabay
