Hungarian state passes duties of welfare benefits to local councils

March 6, 2015

Translation of Attila Kálmán’s article “Different benefits in Pest and Buda: Density is high in the trouble” (“Eltérő segélyek Pesten és Budán: Nagy a szórás a bajban”) published by Hungarian daily news site on March 3, 2015.

At the beginning of March more than three thousand statues came into effect: every municipal government is responsible for all forms of social subsidies that the national government has passed down to them. compared various districts of Budapest and found that welfare recipients living on opposite sides of the same street can count on significantly different forms of support. Experts don’t think these changes will cause a wave of relocation, but the changes certainly hurt the recipients of social aid the most.

It is also on this day that new welfare statutes come into effect, statutes that local municipalities frantically have to put into action because of the 2015 budget law adopted in 2015 which made four types of social welfare support the responsibility of local governments.

Among these are normative housing support and a debt management service, two areas that provided support specifically to those families burdened public utility and housing arrears. Such problems affect about 2.5 million people in Hungary, and their ability to cope with such problems now depends on where their geographic local. For example, there is a district in Budapest where such support is being phased out by 2016. There are even examples of municipalities where new regulations are being introduced which set new requirements for those who receive welfare support.

Aside from housing support, health care is another area affected by the changes. Starting on March 1st, every municipality must decide for itself whether to keep providing certain certain forms of subsidized health care, if at all. Under the new law the national government provides  local governments with funding, and in some cases special funding, but crafting specific local regulations on how the funds are to be used is the responsibility of the local government. This is one reason it’s no surprise that there are differing significant differences between the conditions for receiving welfare even between districts of Budapest.

Support based on business tax revenues

Parallel to this this legal amendment, support offered to working-age population was removed form under the auscpiced from local councils and placed under regional (járás) jurisdiction. All Budapest district councils reported however that this is a change that is negatively affecting their budget. This means that if councils want to to sustain the previous level of financial aid, they will be forced to raise their own contribution to it.

György Gémes, recently reelected president of the Alliance of Hungarian Municipal Councils, made a statement not long ago, according to which councils have seen their social welfare duties increasing, yet they are only able to secure necessary extra funds from three available sources: they could increase their income by introducing new taxes, they could decrease funds for “non-obligatory” duties, and they could “rationalize” their finances meaning the dismissal of some of their employees.

Based on statements released by the Ministry of Human Resources, councils would be expected to cover extra social expenditure from the collected business taxes, and if this proves to be insufficient, councils will be eligible to apply for state funds. Gémesi told that such tendencies on behalf of the government could trigger harmful consequences because of many aspects:

  • if business taxes would serve as a basis for social care expenditures, no money will be left for local business development, that was the original intention for introducing such a tax.
  • those councils unable to secure necessary funds from the business taxes are eligible for state support, but there is only HUF 30 billion for 1500 settlements, and this could lead to territorial inequalites. Rules of application, however, are still unclear
  • special taxes to cover social expenditures would be imposed in places where the social situation is already very bad.

Jenő Schmidt, president of the National Union of Settlement Councils (TÖOSZ) earlier told that the sum of around HUF 300 billion that councils are free to spend (meaning those councils that enjoy income from the local business tax) presently only benefit 300 settlements (that is, one tenth of Hungary’s 3,100 settlements-ed.).  If the tendency to provide less and less state funds continues. to local governments continues, business taxes will become the sole lifeline of city councils.  (According to Gémesi in 2015 councils are to receive 25-30 billion forints less for this purpose compared to 2014.)

Although the elimination or partial assumption by the national government of municipal council debt saved many settlements from trouble, this does not prevent reproduction of inequalities in the system, and these will be reflected in the social care policies they follow.

Win-win situation?

Bence Rétvári reacted to verbal questions from Socialist MPs on the Monday parliamentary session, saying that people in need, the state, and city councils will all be the beneficiaries of the rearrangement of the welfare system. In reality, if we look at the financial part of the reforms, than we see that the state certainly wins.  Councils, on the other hand, are not that fortunate, as they will be solely responsible for people in need from this time on.

Social welfare employees have criticized the fact that recipients of public assistance will be at the mercy of local welfare distributors: it will not be an external aid with objective eligibility criteria, but it will be councils defining the conditions of both financial aid and in-kind assistance. This creates the possibility for setting welfare conditions that intervene in the private sphere.

According to the official reasoning, after the reforms, local council could custom tailor the welfare system to their specific environment, which is why it is only logical to separate state and council duties. For this, however, councils have to know how to count, even if right now they do not possess appropriate data to determine welfare target groups in an exact way, and they can only rely on estimates. (The concern is partially contradicted by the fact that there were some Budapest districts – like the 7th or the 13th – from where we received very exact numbers and calculations on this issue.)

With these legal amendments councils will receive permissions which they can then use to regulate social policies.  It is up to them if they will support people in need as good as they can, or proceed with especially anti-poor regulations. That emerging differences will result in a “migration of the poor” or trigger a wave of residence-card fraud, both scenarios are considered unlikely by politicians and social policy experts.The latter risk can probably be prevented with proper administrative controls. The former is also unlikely because differences will not be so drastic that already immobile people living in extreme poverty would leave their place of living by the scores. In fact, however, even if the regulations do not encourage internal migration, they will still affect the everyday lives of people below before the subsistence level to a large extent.

Only Zugló has an alternative plan

Budapest district councils – at least those who answered our questions in a week, meaning the 1st, 5th, 8th and 13th district – did not mention local taxes as a basis of financing their new welfare duties. (In the case of Józsefváros, we have already written about how they would expand their apartment tax.) We received a clear answer only from the 13th district, saying that they plan to cover extra social spending from the business tax. The rest and the 14th district were all talking about increasing social expenditures.

Based on the regulations, it is hard to tell how much additional expenditure those councils not responding to us are calculating with. But it could be generally established that no one is preparing an alternative plan, with the exception of Zugló.  The 8th district was repeatedly mentioning “rigorousness” to us: “The objective is to distribute welfare among those who actually need it.  On the other hand, those who aim to abuse the system–picking up welfare while driving a luxury pickup– should not receive any assistance from public money” reads the council’s answer.

The National Collection of Laws and Regulations already contains council social regulations that are prepared so far. Regulations prepared by Buda, Pest, outskirts or inner city, smaller or larges districts are all accessible.  For now, the only rule appears to be irregularity.  Only later experiences will be able to show, if this is due to fine-tuning on the districts’ part, or to the randomness of hastily prepared regulations.

I really pays to live in the Castle District

The four types of welfare that came under council jurisdiction recently will, in one form or another, continue to be distributed with the exception of a caretaker’s benefit. The latter was only included in the regulations of the5th, 13th, 16th and 22nd districts.

Apartment support benefit, eligibility for which depends on the level of household income is determined as the same or multiple of the minimum retirement pension, which presently is 28,500 forints. A certain maximum will be determined depending on the total gross household income divided by the household costs (the threshold could be anything between 20 and 35 percent). In most cases the maximum is 250 percent, meaning that a household is eligible to receive monthly benefits when monthly income is under 71,250 forints per person.

In the case of single households the upper limit is raised in the 22nd district to 99,750 forints. In the 23rd district, however, those households earning over 230 percent of the minimum pension are ineligible to receive living benefits, which is lower than the customary 250 percent. This means that such benefits could only be claimed when the household has less than 71,250 forints monthly income per person. There are profound differences in the upper limit of funds that can be requested as well. In the 5th district this maximum is 3,000 forints while in the 1st it is 15,000 forints. Based on the available regulations it is clear that the available support is systematically lower in the outskirts of Budapest than in the inner city, and the sums themselves are also more modest.

12th district provides the most aid for medicine

The survival of healthcare contribution benefits also varies depending on the given municipality.  In less-populated districts typically inhabited by residents with higher incomes, the upper eligibility limit is 300% of the minimum pension, but pensioners over 95 living in the 5th district can receive support even with a pension of 199,000 forints. In the 17th district pensioners who are not living alone may not receive more than 150 percent of the minimum pension, and in the outskirts, the upper limit is typically around 200 percent. Medicine benefits are usually not more than 6000 forints per month, but can be as much as 12,000 forints in the 12th district, and as little as 5000 forints in Budafok.

18th district: Benefit with 1,5 millions in debt

The greatest differences will be in the various debt-reduction benefits. No two, similar regulations can be found on that issue: the level of income, household wealth, the size of the apartment, number of people in the household and many more varying conditions (occasionally including participation in some kind of personal advisory service or co-operation with a charity organization) make the picture more colorful from district to dictrict. In the 7th district for example, a debt relief in the amount of 50,000 Ft to 300,000 Ft is available subject to a 25 percent own contribution on the first occasion.  In the 17th district it is available for debts between 50,000 Ft and 250,000 forints with a 40 percent own contribution.  While in the 18th district debt relief can reach 1.5 million with a minimum own contribution of 25 percent. In the 22nd district the maximum amount of debt relief is 200,000 forints.

The variety of Budapest social regulations already sufficiently suggests a similar kind of density throughout the country. Many councils of the poorest sub-regions outside of Budapest were asked the same questions.  The answer was the same everywhere: that they would only know whether the system is effective by the second half of 2015, and this would imply further changes as well as new kinds of local taxes to be introduced.