Hungary slashes discretionary public assistance benefits

March 16, 2015

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Translation of  interview with Jenő Schmidt, mayor of Tab (Somogy county, Southern Hungary) president of the National Federation of Regional Councils, on ATV’s Start, originally aired on 13 March 2015

Lead: From March 1 the system of welfare benefits underwent radical changes in Hungary. The state has abandoned its role in numerous forms of support, leaving it to the discretion and coffers of local councils.  I will ask Jenő Schmidt, president of the Federation of Regional Councils who, by the way, is a Fidesz mayor, how many people will end up worse off in a more vulnerable position as a result of the changes.

ATV (Antónia Mészáros): There are many forms of social supports, such as the household sustainment contribution that was funded to date from the state budget, but afterwards councils will be expected to finance them, at least in the case of richer councils. However, it is as if countless settlements, when told to to decide at the end of February what kind of welfare duties they are willing to carry on with, ruled out the possibility of continuously providing such benefits . How does the larger picture look at the moment?

Jenő Schmidt: Let’s start from the state’s side. The state requires that this kind of social benefit system should be balanced, so that social expenditures budgeted by the state do not increase.  The welfare system therefore will be rearranged. This is how the reform of the benefit system is being set up, meaning that a couple of automatic entitlements will be handled by regional government offices, and the remaining discretionary benefits will be handled by the councils. These forms of benefits were already there before, but now it will be a lesser amount, distributed according to each council’s income, and mostly financed by taxpayer money provided by the state.

For example, 80% of all unemployment compensation benefit was financed by the state and 20% was normally added by councils. With recent rearrangements, more well-to-do councils are expected to cover the entirety of the costs – by large we are talking about 40 billion forints (USD 140 million) here. More than 760 councils fall in this category accounting for 60% of (Hungary’s) inhabitants. This 40 billion forints are now expected to be covered by tax revenues collected directly by the settlement councils, providing the councils leave the regulation as it is now.

ATV: But the big question is what city councils are willing to take up considering they were only given until the end of February to decide.

SJ: Exactly. Every council was looking into this.  On a national level there were types of benefits provided by the councils that remained in place. Very few types of benefits were discontinued. It is not 2015 that will be interesting in this regard but 2016–namely how these amounts will grow, and how the central aid to the remaining 1700 or 2000 councils will work out.

ATV: According to the press, numerous smaller settlements decided that they will not provide housing maintenance benefits, equitable caretaker’s benefits or utility arrears handling contributions

SJ: Yes, but this is not much for now. The well-to-do group of councils consist of 300 settlements. The remaining 400 (sic) will receive financial assistance in proportion to their lower tax income. A settlement now should calculate how much state funding they will get, and how they will effectively distribute it through various public assistance schemes. There should be no illusions here–whoever receives unemployment compensation will also require assistance in other forms.  They will come for food packages, firewood, any number of cases. The issues of personal entitlements and conditional entitlements are clearly separated.  In the first case funded by the state the citizen comes in and fills in a form indicating his income level.  In the second, which is funded by the council, he has to meet the conditions of entitlement.  This could be schooling contribution, medicines, etc.

ATV: But am I wrong to assume that overall councils cannot provide the same level of assistance now that they could in cooperation with the state? So eventually the level of a discretionary public assistance will be significantly lower in every settlement?

SJ: We will see how much local councils will decide to give.

ATV: What will happen in your town?

SJ: We discontinued the apartment sustainment contribution. In the case of the city of Tab this was 12 million forints (USD 412,000) annually. There is also the issue of differences between towns and between villages.  Tab has a relatively high level of income but a relatively low level of population. We have to service a big region.  And let’s not forget that it is not only social benefits but sustaining schools, providing hot meals, fulfilling cultural duties. I have to say that all these obligations remained with the councils without the extra funds to fulfill them.

ATV: But beforehand you stated that discontinuing support is not the norm. Yet now I am hearing that in you own town, Tab, the household maintenance fund was discontinued. Whoever had this as an important form of assistance before will no longer be able to secure it.

SJ: There will be something to secure.  There will be a settlement support in general.

ATV: But you just said that those 12 million forints will now be saved.

SJ: Well sure, we will no longer provide a direct household maintenance benefit.  But we will continue to provide assistance to those concerned by it in other forms.

ATV: What income can serve as a basis for financing welfare provisions? What have you spent the money on so far? I understand that just because the Hungarian state rearranged the duties, this does not mean that you will get extra funds for it. The rule of thumb here basically is to use local taxes on the turnovers of local businesses. Wherever there is surplus revenue, there will be less state assistance for compensating such benefits. But I presume you spent revenues from local business taxes in some way before March as well.

SJ: Money never goes missing.  It only flows around.  So now 60% of these funds were already used by the council to sustain compulsory alimentation. This means that settlements with a population of over 3,000 have the duty of sustaining public schools, providing everything for them from toilet paper to running water.  This is already a burden of the councils, about which the population is seemingly unaware.

ATV: So, say, you can take money away from them to keep the benefits unchanged?

SJ: Well, not only from there, you can take money from investment sources and other things. All I can say is that globally as councils we collect some HUF 700 billion (USD 2.4 billion) in the form of local business taxes. Of this HUF 400 billion (USD 1.4 billion) is already accounted into doing our compulsory duties. This is now complemented by our new duties in welfare with an extra HUF 40-50 billion.  Consequently we will spend 450 billion forints on compulsory expenses. The remaining HUF 250 billion (USD 870 million) is the whole area of mobility for local councils, and the tendency we see is that slowly the whole amount we are collecting in local taxes is being diverted towards fulfilling the obligations we are taking over from the state. So our possibilities for an own budget will be reduced, despite having our own sources especially for investment. Wherever there is significant local income we are supposed to fulfill infrastructure development that our local businesses would need, as this is why they are paying their taxes.

ATV: So you think that recent changes put councils in a difficult situation? As a Fidesz mayor how are you coping with these changes?

SJ: They put me in a difficult situation. But we will assess this period of transition in 2016.

ATV: But you just said that you will be without your own sources of income by then.

SJ: We are having difficulties with these reforms, I should add this. We will see how they go.

ATV: Have you been asked if this is the right thing to do?

SJ: No.

ATV: So there was no consultation whatsoever?

SJ: There was none.  We had a single meeting with the government officials at the National Council of Municipal Council Cooperation, where the undersecretary outlined how they are aiming to change the social welfare system.  But that was it.

ATV: How are Fidesz mayors handling the fact that such a profound change is not discussed even within their own political party?

SJ: This is a difficult question, what is being discussed.  The way I see it is that the forms of discussion are now narrowing down. I really hope that in the future they will be restored.  If we continue in the direction of having to spend a major source of tax income taking over state duties, then I am not sure that we can talk about a real council autonomy.

ATV: So according to you, this puts the councils themselves in an impossible position, and renders ineffectual the whole planning procedure.

SJ: No, it is not ineffectual.  But the whole process is determined in a way that we collect the taxes, but the state decides what should we spend it on.  And from that point of view, our autonomy is symbolic, at best.

ATV: Can you tell us where this lack of real power means a problem in the everyday duties of councils?

SJ: In provisory funding.  In our ability to contribute to investments.  I will give you examples for which we cannot secure EU funding: say you have to buy equipment for a kitchen for a couple of million forints – we cannot buy it. Or say we need an excavator to help us in building the sewage system or water pipelines – we cannot buy that either. We need all-wheel-drive cars to distribute the salt on snow and ice – we cannot buy it, as our own resources are shrinking.

ATV: Well, the scenario that settlements will solve these problems by spending less is not realistic.

SJ: No, not at all.  As in this way, they would confront their own population and every four years, there is an election. Those people who are rigid and down-to-the ground are not especially popular. There are more and more in need of welfare, or if I correct myself, they do not necessarily need it, but a significant segment of this society simply got used to receiving it, and it is really difficult to step out of this mindset – or from every form of support. Apartment sustainment benefit is the one, and I have just heard this in the parliament, that was referred to by one of the former Socialist undersecretaries as his “love child.” Well, all right it is his “love child” but we should also see that the whole form of support came about at a time when utility prices were skyrocketing. Now we have utility price reduction, so an apartment benefit could be gradually discontinued.

ATV: The undersecretary in charge, by the way, said that the whole point of the reform is to make the system fairer, and to receive benefits in a system that is fair. Local councils can decide better who are the people who really need assistance. According to him, the overall amount of state/council benefits will not decrease, and it cannot happen that a poorer council cannot provide social benefits to the inhabitants. Do you agree with this evaluation?

SJ: Let’s separate the issues here. There are three aspects. The first is that in reality there will be more state funding involved now than before, only it will be redistributed from one place to another. I agree with the notion that nobody should be left without benefit. Some minimal support will be available for everyone if he or she is in need. There are two or three forms of discretionary support available. They fill in the form, they would not even check it by the way, they will only check if the permanent address is right, every single other document to be attached is issued by state offices, so they will automatically provide the benefit if the address is right. We, on the other hand, will be able to check (in settlements under 20,000, over that it is more difficult as you don’t know everybody) so we will know exactly if somebody receives employment compensation while working in Austria.  So not other benefits will be available for him. But whoever receives this compensation will surely show up for other benefits at the council as well.

ATV: So, if I understand it well, the same amount of benefit will not be available to people any more, even if some forms will remain unchanged.

SJ: Yes, this is the case.  The amount will not be the same.

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