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Municipalities with fewer than 25,000 residents will be automatically compensated for lost revenues

Government working to keep local councils functioning

Helping Hungary's local councils stay operational is in everyone's interest, Balazs Orban, a state secretary of the Hungarian Prime Minister's Office, wrote in a letter to Gyorgy Gemesi, head of the alliance of local governments MOSZ, on Monday.

Municipalities with fewer than 25,000 residents will be automatically compensated for lost revenues, Orban wrote, adding that the government was open to negotiations with larger cities. Also, Hungary’s permanent representative office in Brussels is prepared to help local council leaders whose cities are in need of financial support from the European Union, the state secretary added.

Orban noted that Gemesi in the past had criticised the government’s handling of the coronavirus pandemic on multiple occasions, particularly its financing of local councils. The state secretary said the burdens that come with Hungary’s response to the pandemic were being shared fairly by the whole of Hungarian society.

Due to the pandemic and its effects on the economy, Hungary’s GDP is projected to contract by 6.4 percent in 2020 compared with expectations of a 4 percent growth rate at the beginning of last year, Orban said. And in a situation like this, he added, “hardly anything can be more important . than protecting jobs”. The key to this is to reduce the burdens on Hungarian small and medium-sized businesses, such as the business tax, he said, arguing that SMEs employed the most people in the country.

Orban said that “contrary to claims by certain opposition city leaders”, the government was not taking “a single cent” away from local councils by halving the local business tax payable by SMEs. Instead, the businesses will be keeping that money and the measure is actually an expenditure for the government, he added.

“The government believes that instead of raising taxes in a time of crisis, the burdens on people and business should be reduced,” Orban wrote.

The government spent more than 1,000 billion forints (EUR 2.75bn) on health-care measures in response to the pandemic in 2020, 3,700 billion on rebooting the economy and close to 3,000 forints on supporting workers and businesses, the state secretary wrote.

The moratorium on loan repayments has saved families and businesses 2,000 billion forints, he said, noting that the government has also begun reintroducing the 13th month pension. Also, this year alone, it will spend over 197 billion forints on wage hikes for health-care workers, Orban added.

He also noted that the 2021 budget allocates 865 billion forints in state support to local councils, 17 percent more than last year’s budget.

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