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Starved for funds from Orbán gov’t, local municipalities face bankruptcy

picture of Szeged City Hall

The Orbán government has bled Hungarian local municipalities dry over the past 12 years, writes Népszava. Some towns and cities run by the opposition are now facing bankruptcy, which would put them under government guardianship in financial and legal terms, if they do not get emergency financial aid from a new government in April.

But it is not just localities run by the political opposition that are in a tough spot. Mayors from Hungary’s ruling parties have also started to speak out against the Orbán cabinet’s measures that affect towns and cities.

The division of responsibilities between local governments and the state, as well as financing, need to be reconsidered, András Cser-Palkovics, the Fidesz Mayor of Székesfehérvár, told Index after representatives from local municipalities discussed supplemental funding requests with the Ministry of Finance at the beginning of January.

The budget law allocates a total of 3.181 trillion Ft. (US $10.0 billion) for local municipalities to spend in 2022, which is around 200 billion less than what municipal expenditures were in 2010. In other words, funding to local governments has decreased over the past 12 years in nominal terms alone, but after adjusting for the 30% inflation seen over this same period, their drop in revenue to municipalities has been even worse.

This can also be seen in the share of municipal expenses as a proportion of GDP. The 3.395 trillion Ft. ($10.7 billion) actually spent in 2010 accounted for 12.5% of the country’s GDP at the time. In contrast, the share for this year is only 5.6% of Hungary’s expected GDP, meaning that expenditures as a share of GDP have been cut in half over the past 12 years.

At the same time, the responsibilities given to mayoral offices have also changed. In 2012-2013, health care and educational institutions were taken away from them. But even in 2011, municipal expenditures as a proportion of the country’s GDP began to decrease. As a result, localities are no longer able to fund basic development projects on their own.

Citing the epidemic, the Hungarian government and Parliament lowered the local business tax to a maximum of 1% for small and medium-sized businesses in December, which by itself will lower municipal revenues by several tens of billions of forints and means a major blow to the budgets in Hungary’s larger cities.

However, at the request of local municipalities, the government has decided to reimburse their additional costs associated with the minimum wage hike that went into effect on January 1. While this alone will not save municipal budgets, the government decree at least provides them with some extra revenue to cover their added expenses.

[Magyar Hang][Photo: Szeged City Hall, Wikimedia Commons, GFDL, CC-by-SA 2.0-de]

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