Hungary

Hungary - Monitoring report

Date of the monitoring visit: from 23 to 25 May 2012
Report adopted on: 31 October 2013

This report on the situation of local and regional democracy in Hungary follows up on Recommendation 116 (2002) and the Congress visit carried out in May 2012.  The report welcomes the ratification by Hungary of the Additional Protocol to the European Charter of Local Self-Government on the right to participate in the affairs of a local authority in June 2010. It expresses regret, however, that this positive step is overshadowed by the recent reforms, which led to a deterioration of the legislative framework on local and regional issues in Hungary. In particular the report underlines a deep concern about the overall trend towards recentralisation of competences and the weak level of protection afforded, at constitutional level, to the principle of local self-government. It underlines the fact that the local authorities in Hungary remain strongly dependent on government grants, and that the consultation procedure needs reinforcement, bringing it in line with Charter provisions on timely and appropriate consultation practices. Lastly, local authorities do not have an effective judicial protection as regards their right of recourse to courts to guarantee their rights under the Charter.

 

It is recommended notably that the Hungarian authorities take steps to guarantee the implementation of the principle of self-government and the financial autonomy of local and regional authorities as set out in the Charter. The recommendation also strongly encourages the Hungarian authorities to clearly define the competences of local and regional authorities and to seek solutions which will provide local and regional authorities with the requisite human and material resources. It calls on the Hungarian Government to put in place an effective consultation procedure for all matters which concern territorial authorities directly as stipulated by the Charter, and to implement effective remedies which provide a right for representatives of local authorities to lodge a complaint to courts in order to protect their rights laid down in the Charter.

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Article ratified Ratified with reservation Non ratified
Compliance Partial compliance Non compliance To be determined
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Article 2
Constitutional and legal foundation for local self government - Article ratified

The principle of local self government shall be recognised in domestic legislation, and where practicable in the constitution.


Article 31.1 of the new Constitution stipulates that “in Hungary local governments shall be established to administer public affairs and exercise public power at a local level” while the principle of local self-government is not expressly mentioned.

 

The explanatory memorandum to the Cardinal Act CLXXXIX on Local Government of 21 December 2011 expressly refers to the Charter (drawing a parallel with the traditions of local government in Hungary) but makes no mention of the principle of local self-government: “The goal of the legislation is to create a local government system, based on the European Charter of Local Self-government, which is modern, cost-effective, task-oriented and provides the possibility for democratic and more effective operation.”

 

The general spirit of the text, reiterated in the explanatory memorandum, is that the reduction of Hungary’s debt is the central aim of its legislation. The Government stressed that this objective is to be attained by “rationalising” local management. The rapporteurs consider that the principle of local self‑government is not taken into consideration in the implementation of this particular form of “rationalisation”.

 

It is noteworthy that the delegation’s talking partners at the Ministry of the Interior rejected the term “centralisation” - except for the state powers which had been entrusted to local town hall clerks - and preferred to speak of “rationalisation”. Most of the delegated administrative powers were taken back by the central government from local officials (mainly from the town hall clerk). Since 1 January 2013, almost all the local and regional state administrative tasks and functions have been carried out by 198 “district offices”, which are the subordinate units of the county governmental offices. Although the latter have always been state administrative functions, (earlier delegated to municipal officials), as a consequence of their recentralisation, the mayor’s offices have lost a large part of personnel and a large amount of financial resources.

 

The current division of powers between the State and local authorities does not take account of the Charter’s stipulation that local authorities have “the right and the ability to regulate and manage a substantial share of public affairs under their own responsibility and in the interests of the local population”.

 

The very notion of “public affairs” seems debatable: certain spheres referred to as “technical” or “purely administrative” by the State are to be recentralised.

 

Significant cuts in the powers of municipalities and counties were explained by a drive to cut public spending and the need for fair and equal treatment of citizens.

 

The delegation deplores the fact that neither the Constitution nor Cardinal Act CLXXXIX on Local Government of 21 December 2011 refers to the principle of local self-government. It is true that the explanatory memorandum to the Cardinal Act expressly refers to the Charter, but it does so only to strike a parallel with the traditions of local government in Hungary and avoids citing the principle of local self-government. Accordingly, the principle of local self-government is not explicitly guaranteed, which was also criticised by the Venice Commission in its opinion 621/2011 on the New Hungarian Constitution (paragraph 117). The Constitution guarantees only the existence of local authorities, not their powers. The local authorities’ powers are exercised “within the limits of the law” which leaves the legislature with considerable room for manoeuvre. Local self-government is not presented as a fundamental principle of Hungarian institutions. On the contrary, local self-government appears as unfair and costly. The Hungarian system, which was by and large a two-tier one is now moving towards a single power-base (or indeed a monopoly) to the benefit of central government, although this shift has not yet become total, as local authorities remain very much a topic of political debate.

 

The share of public affairs entrusted to local government has decreased very significantly. The financial autonomy of local governments has severely reduced in the last two years, strengthening the control of central government over local government finance. In addition, numerous powers hitherto exercised by local government are described as being “naturally” recentralised. In particular, health and social care as much as education have now been almost completely centralised. All three sectors, accounting for 86% of local expenditure, which were previously a matter for the municipalities and counties, have been transferred to the central level. Local authorities are therefore losing fundamental powers, with no real compensation, while in the spirit of the Charter, both the adequate finance and the public service functions of local interest should be allocated to them. Health and education will be managed by administrative authorities and not, as was previously the case, by elected authorities.

 

The manner of electing and organising local government councils complies with the Charter. The voting system for local elections was changed a few weeks before the ballot of 3 October 2010 in order to tighten the rules on eligibility. 

 

In view of the facts objectively noted above, the rapporteurs are of the opinion that the situation in Hungary is not in conformity with Article 3 of the Charter.

Article 3.1
Concept of local self government - Article ratified

Local self-government denotes the right and the ability of local authorities, within the limits of the law, to regulate and manage a substantial share of public affairs under their own responsibility and in the interests of the local population.


Consult reply indicated at article 2

Article 3.2
Concept of local self government - Article ratified

This right shall be exercised by councils or assemblies composed of members freely elected by secret ballot on the basis of direct, equal, universal suffrage, and which may possess executive organs responsible to them. This provision shall in no way affect recourse to assemblies of citizens, referendums or any other form of direct citizen participation where it is permitted by statute.


Consult reply indicated at article 2

Article 4.1
Scope of local self government - Article ratified

The basic powers and responsibilities of local authorities shall be prescribed by the constitution or by statute. However, this provision shall not prevent the attribution to local authorities of powers and responsibilities for specific purposes in accordance with the law.


This article of the Charter is at the heart of the debate that is ongoing in Hungary on the subject of local government. The division of powers between the State and the different levels of local government that was established in 1990 is undergoing a major rethink. It is true that it was particularly complex, combining the local authorities’ own prerogatives and competences delegated by the State which are exercised not by elected local bodies but by an official, the town clerk, through decisions in which the municipal council is not authorised to intervene.

 

It is true that spending on health and education accounts for a large part of local budgets whose balance is now compromised by the economic crisis, but this observation alone does not justify a transfer of these competences to the central level. Other alternatives could also have been considered but the government has clearly opted to centralise powers. The wording used by the State’s representatives was highly symptomatic in this respect: the delegation was told several times that local authorities had to be “relieved of the burden” of this expenditure. However, as the Ministry of State for Municipal Affairs points out, by transferring spatial development tasks to county local governments, county level parallel activities can be terminated and the supplementation of the spatial planning tasks, already performed by county local governments with spatial development tasks, can guarantee consistency of the two types of activities, which are closely related.

 

In addition, the Hungarian State took back control of the powers it delegated to local town hall clerks, who had been taking on increasing importance (by the reckoning of the Ministry of Public Administration and Justice). Instead of relying on the network of town hall clerks, the State is setting up a decentralised network of officials under its direct control. This reform movement, in progress at the time of the delegation’s visit, is accompanied by a reform of the civil service within a unified legal framework. Law CXXIX on the civil service of 2011 establishes the general framework for this reform.

 

The delegation focused in particular on the application of Article 4.6 of the Charter which provides that “local authorities shall be consulted, insofar as possible, in due time and in an appropriate way in the planning and decision-making processes for all matters which concern them directly”.

 

This requirement was reiterated by Recommendation 171 (2005) of the Congress of Local and Regional Authorities: “The Congress, bearing in mind the proposal of the Chamber of Local Authorities, 1. Considers that the right of local authorities to be consulted, which is enshrined in Articles 4.6, 5, 9.6 and 10 of the European Charter of Local Self-Government (hereinafter referred to as “the Charter”, is a fundamental principle of European legal and democratic practice, the aim of which is to contribute to good governance; 2. Believes that, in the interests of promoting good governance, consultation of local authorities has to be a required part of policy-making and administrative processes, enabling the wishes of local authorities to be known in good time and properly taken into account in the decisions of central and regional authorities”. This requirement has been recently recalled in Recommendation 328 (2012) adopted by the Congress.

 

Hungary has several associations of local authorities, even compared with countries with considerably larger populations and surface areas. These associations all have differing missions, and their members appear to be keen on maintaining this diversity of representation.

 

The seven local authority associations are as follows:
- National Interest Group of Small Town Local Governments (Kisvárosi Önkormányzatok Országos Érdekszövetsége, KÖOÉSZ)
- National Local Government Federation of Villages, Smaller Municipalities and Micro-Regions (Községek, Kistelepülések és Kistérségek Országos Önkormányzati Szövetsége, KÖSZ)
- The Hungarian Village Federation (Magyar Faluszövetség)
- Alliance of Cities of County Rank (Megyei Jogú Városok Szövetsége, MJVSZ)
- National Alliance of County Governments (Megyei Önkormányzatok Országos Szövetsége, MÖOSZ)
- National Alliance of Municipal Governments (Települési Önkormányzatok Országos Szövetsége, TÖOSZ)
- National Alliance of Local Governments (Magyar Önkormányzatok Szövetsége, MÖSZ)

 

This specific feature was already highlighted in the 2002 monitoring report: “The complexity of the system and the diversity of the interests of the different components are reflected in the large number of national associations of local and county authorities”.

 

The fact that the government has no single talking partner does not facilitate consultation with local authorities. Examples elsewhere show that a single association per level of authorities gives these authorities real influence in consultation. The counties have their own representative association, which is the only local authority association to cover the entire territory of Hungary.

 

Besides the difficulties caused by the large number of associations, the local authority consultation procedure merits close examination. A decree of 2010 established the principle of bi-annual consultation and the concluding of partnership agreements but this text has been rendered null and void by the new Cardinal act.

 

The dialogue between the State and the territorial authorities needs to be more clearly defined so that it is not of a purely formal nature. Local authority associations must be granted a reasonable period of time to read the government’s proposals and prepare their written replies. Even though in some counties for instance in Csongrád County as indicated by its president during the visit, the consultation process works well, other examples indicate a more troublesome consultation process. In any event, a deadline of 24 or 48 hours (the delegation was informed during its visit that such a deadline had already been given by central government to the local authorities to state their views on a text) cannot be considered as a reasonable period of time for such a purpose within the meaning of the Charter. The conditions in which hearings might take place must also be specified. Finally, they must have all the necessary information (particularly financial data) to give an enlightened opinion.

 

Consultation is crucial when reforms are carried out one after another within a short timescale and local authority powers and financing methods are at issue. Discussions on local government issues deserve an adequate time in order to achieve a proper maturation.

 

The scope of local self-government has been significantly reduced. The division of powers between the central tier and local government has been radically modified, to the exclusive benefit of the former.

 

It is clear to the rapporteurs that the movement towards centralisation of competences under way in Hungary does not conform to Article 4 of the Charter. The division of powers between the central level and local government has been radically overhauled, to the sole benefit of the central authorities. 

Article 4.2
Scope of local self government - Article ratified

Local authorities shall, within the limits of the law, have full discretion to exercise their initiative with regard to any matter which is not excluded from their competence nor assigned to any other authority.


See answer at article 4.1

Article 4.3
Scope of local self government - Article ratified

Public responsibilities shall generally be exercised, in preference, by those authorities which are closest to the citizen. Allocation of responsibility to another authority should weigh up the extent and nature of the task and requirements of efficiency and economy.


See answer at article 4.1

Article 4.4
Scope of local self government - Article ratified

Powers given to local authorities shall normally be full and exclusive. They may not be undermined or limited by another, central or regional, authority except as provided for by the law.


See answer at article 4.1

Article 4.5
Scope of local self government - Article ratified

Where powers are delegated to them by a central or regional authority, local authorities shall, insofar as possible, be allowed discretion in adapting their exercise to local conditions.

 


See answer at article 4.1

Article 4.6
Scope of local self government - Article ratified

Local authorities shall be consulted, insofar as possible, in due time and in an appropriate way in the planning and decision-making processes for all matters which concern them directly.

 


Where Article 4.6 is concerned, the consultation procedure is a simply formal one. It is true that the number of associations representing local and regional authorities in Hungary does not make for effective consultation. This situation leads the rapporteurs to conclude that the situation is also not in conformity with this provision of the Charter.

Article 5
Protection of local authority boundaries - Article ratified

Changes in local authority boundaries shall not be made without prior consultation of the local communities concerned, possibly by means of a referendum where this is permitted by statute.

 


It seemed to the rapporteurs during their visit that the Hungarian system respects the principles laid down by Article 5 of the Charter. The new text does not undermine these provisions (Chapter V of the Cardinal Act CLXXXIX on Local Government).

 

As provided for by the Charter, local authority boundary changes may be made only as a result of a local initiative and following consultation of the communities concerned. The delegation points out, however, that the current regrouping of municipalities’ administration fails to comply with the spirit of Article 5 insofar as this took place without consultation with the communities concerned.

Article 6.1
Appropriate administrative structures and resources for the tasks of local authorities - Article ratified

Without prejudice to more general statutory provisions, local authorities shall be able to determine their own internal administrative structures in order to adapt them to local needs and ensure effective management.


Article 6 of the Charter provides that local government shall be able to determine their own internal administrative structures and to recruit their staff on the basis of merits and competences.

 

There is substantial municipal fragmentation in Hungary, which has many very small municipalities. All those spoken to by the delegation acknowledged that this situation called for reform and the setting up of inter-municipal structures, enabling more municipalities to maintain an adequate level of services.

 

While preserving the principle that each local community may have its own municipality, laid down in 1990, Article 85 of the Cardinal Act on local government of December 2011 set the figure of 2000 inhabitants as the critical threshold for local administration. Municipalities below that threshold will have to group their administrative services together in a “district” or “micro-region” in 2013. Each municipality will keep its mayor and its municipal council but the administrative structures, and the exercise of prerogatives, will have to be pooled. The Ministry of State for Municipal Affairs emphasised in their written comments that, “the consolidation of the administrative structure (offices) of settlements having fewer than 2000 residents is not the same as a reduction of the independent exercise of competences (tasks) and the ability of self-governance. This grouping strategy is intended to generate savings and ensure that essential services are maintained for the communities despite the economic crisis.”

 

The question of where the staff who are to work in these new structures will come from remains to be settled, as part of the ongoing reform of the statute of civil service staff. In this respect, all municipalities concerned had to come to an agreement with the relevant county governmental offices with the transfer of the respective personnel and offices (buildings and rooms) until the 1 January 2013.

 

According to the delegation, this form of pooling at the supra-communal level (district) competences of municipalities of less than 2000 inhabitants, which is implemented through an administrative structure, composed of civil servants from the State, seriously infringes the principle of local self-government as provided by Article 6.

 

The delegation notes the substantial municipal fragmentation common in Hungary and is concerned over the purely administrative logic that prevails in the setting up of “micro-regions” and the distinction drawn between elected authorities within the municipalities and the administrative structures that will manage competences within the micro-regions. A model of inter-municipal cooperation including the one referring to tasks and competences is necessary in Hungary, but it should not be developed throughout non-elected administrative bodies. There is a real danger that the elected councils of small municipalities are stripped of their political substance and their political bodies.

 

The administrative structures and resources available to the local authorities in Hungary today do not appear to be commensurate with the tasks assigned to them - a situation which, in the opinion of the rapporteurs, is not in compliance with Article 6 of the Charter. In the light of the above, the rapporteurs conclude that the situation is not in conformity with Article 6 of the Charter.

Article 6.2
Appropriate administrative structures and resources for the tasks of local authorities - Article ratified

The conditions of service of local government employees shall be such as to permit the recruitment of high-quality staff on the basis of merit and competence; to this end adequate training opportunities, remuneration and career prospects shall be provided.


See answer at article 6.1

Article 7.1
Conditions under which responsibilities at local level are exercised - Article ratified

The conditions of office of local elected representatives shall provide for free exercise of their functions.


The status of local elected representatives is established by Law XCVI which dates from 2000 and was not substantially amended by Law CLXXXIX of 2011.

 

The remuneration of local leaders is regulated by Law LXIV, which dates from 1994. The delegation notes that the voting system for local elections was amended a few weeks before the local elections held on 3 October 2010 in order to tighten up the rules on eligibility, which benefited the main political parties.

 

The conditions under which responsibilities at local level are exercised generally appear to be in conformity with Article 7 of the Charter.

Article 7.2
Conditions under which responsibilities at local level are exercised - Article ratified

They shall allow for appropriate financial compensation for expenses incurred in the exercise of the office in question as well as, where appropriate, compensation for loss of earnings or remuneration for work done and corresponding social welfare protection.


See answer at article 7.1

Article 7.3
Conditions under which responsibilities at local level are exercised - Article ratified

Any functions and activities which are deemed incompatible with the holding of local elective office shall be determined by statute or fundamental legal principles.


See answer at article 7.1

Article 8.1
Administrative supervision of local authorities' activities - Article ratified

Any administrative supervision of local authorities may only be exercised according to such procedures and in such cases as are provided for by the constitution or by statute.


The Venice Commission has voiced its concern over the lack of precision of Article 32.5 of the Fundamental Law relating to supervision of local authorities. The new Constitution empowers the governmental offices of the capital and of the counties to issue municipal decrees, by court decision, where a local authority fails to fulfil its “obligation to legislate imposed on it by law” (Article 32.5). Individual decisions can also be taken in this way, after the court has empowered the governmental office to do so.

 

At present, it is the government which ensures that local authorities comply with the law in their activities; it may respond to any shortcomings by prosecuting the authority in question. Articles 137 to140 of the Local Government Act regulate the procedure. Other procedural rules are determined by the law on the administration of justice.

 

The delegation shares the view of the Venice Commission and reiterates its recommendation made in the opinion 261/2011 at paragraph 118 “that the subsequent local self-government legislation provides clarity in this respect. In particular, a clear distinction should be established between, on the one hand, the local authorities’ own competences and those delegated by the central government and, on the other hand, between the control of the local authorities’ activities’ legality and supervision of their decisions’ expediency”.

 

The Venice Commission report also highlights Article 35.5 of the Fundamental Law, which stipulates that Parliament may dissolve an elected body on the ground of a violation of the Constitution, after seeking the opinion of the Constitutional Court. When questioned on this point, the Constitutional Court’s representatives told the delegation that its opinion would be binding on Parliament, meaning that the country’s political authority would not be the only authority involved in this procedure. However, in legal terms, the opinion of the Constitutional Court is not binding either on the Government, or on the Parliament, as the Fundamental Law and the other relevant laws provide that the Government has to consult the Constitutional Court before conveying its proposal to the Parliament (for a dissolution).

 

According to the information provided by the Ministry for Public Administration and Justice, Article 17(3) of the Fundamental Law states that the Government’s regional administrative bodies with general competence should be the metropolitan and county government offices. Based on Article 34(4) of the Fundamental Law, the Government should perform the legal supervision of local governments through the metropolitan and county government offices. In accordance with Section 12 subsection b) of the Government Decree 212/2010 (VII.1) on the tasks and responsibilities of the Minister of State for the Prime Minister’s Office, since July 2010, the Minister of Public Administration and Justice is responsible for the legal supervision of local governments.

 

The Ministry for Public Administration and Justice has further pointed out that the Government office of the capital Budapest and the Government Offices of the 19 counties were – previously – entitled to perform the legislative control and legal supervision of the local governments which is now based on their territorial jurisdiction. However, local authority decisions may be annulled only on decision of the judicial authority.

 

The Fundamental Law provides for compulsory transmission of local authority decrees to the supervision office in the capital and the county (Article 32.4) which, where applicable, may take them to court with a request for their revision.1 There is a procedure for issuing a deficiency report in the event of failure to execute a legal obligation.

 

Cardinal Act CLXXXIX on Local Government sets out the arrangements for supervision of the acts of local authorities by the government (Chapter VII, Articles 125 and following), as well as the means of appeal against those acts. As the rapporteurs were informed by the Ministry for Public Administration and Justice, Article 132 of the Cardinal Act on Local Governments and the Government Decree 119/2012 (VI.26.) provide for a definition corresponding to Article 8 paragraph 3 of the Charter.

 

Hungarian local and regional authorities are also subject to financial supervision by the State Audit Office, provided for in Article 34 of the Fundamental Law, and also in Article 119 of the Cardinal Act CLXXXIX on Local Government.

 

This supervision has been radically overhauled in recent years with a view to making a correct assessment of the state of local finances and providing local elected representatives with effective means of monitoring and evaluating risks. The points on which the audit was carried out were negotiated with local authority associations.

 

A vast programme of supervision of the management of municipalities and councils has been introduced, operating via desk-checks and on-the-spot checks: local government entities accounting for 80% of total local government debt have been checked using one of these two means. 

 

The Audit Office, in compliance with international practices, does not content itself with a purely financial check focusing on the correct state of accounts and the viability of budgets. It also checks on the efficiency of spending and whether it is commensurate with the aims pursued. It attaches great importance to the internal control and audit mechanisms established by local and regional authorities, and guides them in the introduction of control mechanisms.

 

The audit report is public. The entity audited must produce an action plan to remedy any shortcomings found. This plan is evaluated by the audit office and, if it is found to be inadequate, may give rise to legal action.

 

If the Audit Office finds an irregularity, it makes no judgement itself, as it does not have the necessary judicial competence, but it may refer the matter to an ordinary court judge.

 

The new auditing system functions satisfactorily, and the rate of non-execution of the Audit Office’s observations has markedly decreased. The Office issues an annual report on the execution of its observations.

 

Beyond the immediate consequences of publishing audit reports, the evaluation and auditing approach has a beneficial influence on the entire system, through the dissemination of good practices, its potential inspiration for the legislature and the overall spirit of making leaders responsible that underpins it.

 

The introduction of modern auditing methods makes it possible to identify weak points in the system. Firstly, training for local government leaders needs to be improved. The rules are increasingly complex and demand a higher level of professional expertise from those responsible for local finances.

 

Secondly, the Hungarian rules on public accounting are not suited to modern management, as they are very arbitrary and not geared to reporting the real state of finances, particularly indebtedness. A reform incorporating analytical accounting is desirable. Along similar lines, the audit reports could integrate consolidated balance sheets compliant with International Financial Reporting Standards. Nonetheless, the delegation notes with satisfaction the progress made with regard to the auditing approach in the supervision of local authority management.

 

The undeniable progress represented by the introduction of an auditing approach cannot, however, overshadow the widely-held doubts about the financial autonomy of Hungarian local authorities. The Rapporteurs shares the concern expressed by the Venice Commission about the lack of precision of Art. 32.5 of the Fundamental law which concerns the supervision of local authorities and recommend the control of legality to be furthermore privileged.

Article 8.2
Administrative supervision of local authorities' activities - Article ratified

Any administrative supervision of the activities of the local authorities shall normally aim only at ensuring compliance with the law and with constitutional principles. Administrative supervision may however be exercised with regard to expediency by higher-level authorities in respect of tasks the execution of which is delegated to local authorities.


See answer at article 8.1

Article 8.3
Administrative supervision of local authorities' activities - Article ratified

Administrative supervision of local authorities shall be exercised in such a way as to ensure that the intervention of the controlling authority is kept in proportion to the importance of the interests which it is intended to protect.


See answer at article 8.1

Article 9.1
Financial resources of local authorities - Article ratified

Local authorities shall be entitled, within national economic policy, to adequate financial resources of their own, of which they may dispose freely within the framework of their powers.


Financial autonomy is a necessary precondition for genuine autonomy. Even though the new Constitution provides in Article 32 Paragraph 1 lit. f) that local governments “shall, to the extent permitted by the law” “determine their budgets and perform independent financial management accordingly”, the financial autonomy of local governments has been severely reduced in the last two years.

 

Counties’ own revenues stayed stable (83 Billion HUF in 2007 and 82 billion HUF in 2010).1 However, as a consequence of the reduction of government subsidies (minus 39 Billion HUF from 2007 to 2010) and the decrease of 35 Billion HUF in health finance from 2007 to 2010, the net operation income of the counties decreased from minus 1,814 million HUF in 2007 to minus 30,751 million HUF in 2010.2 Furthermore, the system of central grants became stricter, as local governments have lost their freedom of spending central supports with discretion. The former “resource-based” finance has been changed to a more rigid “task-based” system.

 

The delegation was informed by the Ministry of State for Municipal Affairs, local government debt reached 1,247.5 billion HUF by the end of 2010, which is largely debt in foreign currency. At the end of 2011, the government took over the responsibility for the counties’ debt, originating from loans and bonds; at the end of 2012, the government also took over the debts of municipalities of 5,000 or less inhabitants. These decisions had an important impact on the decrease of the national public debt. Unfortunately they created simultaneously a strong negative impact on the principle of local self-government and the fundament of the local and regional democracy has been undermined. The local and regional authorities paid a high price.

 

Recentralisation in Hungary is not confined to tasks and powers, but also to the financial resources. There has been a significant decrease in central grants and the municipalities’ share in some central taxes.

 

The financial autonomy of local authorities has been severely reduced in the last two years, leading to a strengthening of the control central government wields over local government finance. The system of central grants became stricter, as local governments lost their freedom in spending central subsidies as they want (transforming the old ‘resource-based’ finance to the more rigid ‘task-based’ system).

 

The Cardinal Act on Local Government of December 2011, in chapter VI “The economic foundations of local governments”, emphasises the necessity of supervising local budgets.

 

Municipalities may create:
- land taxes;
- municipal taxes;
- local corporate taxes.

 

They may also collect real estate revenues or fees for public services. They receive state grants, which are voted each year by Parliament. 158. The counties are not allowed to levy local taxes. In the county of Csongrad, for example, 86.5% of budget resources in 2012 consisted of state grants. 159. In a context of economic crisis, local authority resources are particularly vulnerable. 70% of the fiscal resources of local government are collected by the cities and allocated to their budget, whereas in rural areas the municipalities are quickly becoming impoverished. In the absence of sufficient resources, the municipalities must ask for state funding, which may be granted to them twice a year. The rapporteurs consider that the equalisation between local budgets must be developed.

 

Borrowing must be authorised by the State, which judges if the investment project for a loan is financially viable. This state supervision of the indebtedness of local and regional authorities is written into the Fundamental Law,3 which ties it to the requirement of maintaining balanced budgets. 93% of loans are granted to cities or counties, which means that borrowing is beyond the reach of small municipalities.

 

In the context of a crisis-hit economy and dwindling resources, reducing the competences of local authorities, and therefore their spending, is presented by the Government as the only possible solution.

 

There is provision for a reform of the system of local authority funding in the Cardinal Act CLXXXIX on Local Government of 21 December 2011. It is currently in preparation, and the delegation has not been able to establish the overall content.

 

The delegation is concerned as to how the situation might evolve in the context of shortfalls in resources, at a time when local government is portrayed as a financial burden.

 

The new Fundamental Law introduces the principle of a single “national property”.4 This principle appeared in the latter months of 2011, when all the assets and functions of the county councils had already been transferred to the national government, following a change to the old constitution. This new provision undermines the autonomous management of real estate by local authorities, and therefore their overall independence. One of the first measures announced recently (November 2012) by the Government as part of the reform of local finances has consisted in taking over the debt of almost 2,000 municipalities (i.e. almost two thirds of all local authorities). The technical details of the consolidation will be handled by the National Debt Management Centre (AKK). The economic crisis and indebtedness are inescapable realities in Hungary. However, the Rapporteurs wish to emphasise that debt management should not serve as a pretext for severe limitations of local autonomy and for state supervision of local authorities.

 

On the light of the above, the rapporteurs conclude that the current situation is not in conformity with Article 9 of the Charter, except as regard paragraphs 3 and 8.


1Source: National Audit Office, Summary of the 2011 monitoring of local government’s financial situation and the management system.

2Source: ibid.

3Article 34.5 of the Fundamental Law states: “In order to preserve the balance of the budget, a law may make borrowing or other contractual commitments by the local authorities within the limits established by legislation subject to government approval”.

4Article 38 of the Fundamental Law: “The properties of the State and local governments shall be national assets.”See the note above.

Article 9.2
Financial resources of local authorities - Article ratified

Local authorities' financial resources shall be commensurate with the responsibilities provided for by the constitution and the law.


See answer at article 9.1

Article 9.3
Financial resources of local authorities - Article ratified

Part at least of the financial resources of local authorities shall derive from local taxes and charges of which, within the limits of statute, they have the power to determine the rate.


Voir réponse à l'article 9.1

Article 9.4
Financial resources of local authorities - Article ratified

The financial systems on which resources available to local authorities are based shall be of a sufficiently diversified and buoyant nature to enable them to keep pace as far as practically possible with the real evolution of the cost of carrying out their tasks.


See answer at article 9.1

Article 9.5
Financial resources of local authorities - Article ratified

The protection of financially weaker local authorities calls for the institution of financial equalisation procedures or equivalent measures which are designed to correct the effects of the unequal distribution of potential sources of finance and of the financial burden they must support. Such procedures or measures shall not diminish the discretion local authorities may exercise within their own sphere of responsibility.


See answer at article 9.1

Article 9.6
Financial resources of local authorities - Article ratified

Local authorities shall be consulted, in an appropriate manner, on the way in which redistributed resources are to be allocated to them.


See answer at article 9.1

Article 9.7
Financial resources of local authorities - Article ratified

As far as possible, grants to local authorities shall not be earmarked for the financing of specific projects. The provision of grants shall not remove the basic freedom of local authorities to exercise policy discretion within their own jurisdiction.


See answer at article 9.1

Article 9.8
Financial resources of local authorities - Article ratified

For the purpose of borrowing for capital investment, local authorities shall have access to the national capital market within the limits of the law.


See answer at article 9.1

Article 10.1
Local authorities' right to associate - Article ratified

Local authorities shall be entitled, in exercising their powers, to co-operate and, within the framework of the law, to form consortia with other local authorities in order to carry out tasks of common interest.


Hungary has several associations of local and regional authorities . Consequently, the situation is in conformity with Article 10 of the Charter. Nonetheless, the large number of representative partnerships at local level does not facilitate the consultation procedure for the national authorities.

 

Furthermore, Hungary has committed to a 15-year programme of transfrontier cooperation involving two Hungarian counties, three local authorities in Romania and one in Serbia. The programme comprises numerous projects, each involving several local authorities. The projects are run by the counties, and the municipalities only play an advisory role. Stronger involvement of the municipalities in this scheme would be in greater conformity with the subsidiarity principle and generate more support from communities for a scheme which is very active.

 

The rapporteurs underlined the positive aspects of the existence of active transnational programmes. Nonetheless, they expressed regret at the fact that the municipalities had only a consultative role in these programmes which were essentially run by the counties.

Article 10.2
Local authorities' right to associate - Article ratified

The entitlement of local authorities to belong to an association for the protection and promotion of their common interests and to belong to an international association of local authorities shall be recognised in each State.


See answer at article 10.1

Article 10.3
Local authorities' right to associate - Article ratified

Local authorities shall be entitled, under such conditions as may be provided for by the law, to co-operate with their counterparts in other States.


See answer at article 10.1

Article 11
Legal protection of local selfgovernment - Article ratified

Local authorities shall have the right of recourse to a judicial remedy in order to secure free exercise of their powers and respect for such principles of local self-government as are enshrined in the constitution or domestic legislation.


The right of local and regional authorities to appeal to courts to ensure respect for their competences is not guaranteed in the domestic legislation. Local authorities do not have any effective judicial protection to secure the free exercise of their powers or protect their rights as provided in the Charter.  Judicial remedies exist in some cases, such as for legal disputes between local authorities.

 

Article 5 of the Local Government Law (N° CLXXXIX-2011) states that the lawful exercise of the constitutional powers of local authorities is protected by the Constitutional Court and ordinary courts. Local authorities may apply to the Constitutional Court only in case of conflict with another authority concerning their respective responsibilities.

 

Article 16 of the above mentioned law provides for the possibility (on the part of local authorities) of appealing to the court against decisions which go against their interests in very specific cases (such as when the government takes away a development project which would have been of local interest for a municipality). This leads the rapporteurs to conclude that the right to lodge a complaint, when the interests of local authorities are- or risk to be –undermined, is very limited and that the legal protection of local self-government is not effective in the light of the relevant provision of the Charter.

 

The rapporteurs regret that an effective legal remedy is not available to local authorities and they conclude that, in this respect, the situation is not in compliance with Article 11 of the Charter.

Article 12.3
Undertakings - Non ratified

Any Party may, at any later time, notify the Secretary General that it considers itself bound by any paragraphs of this Charter which it has not already accepted under the terms of paragraph 1 of this article. Such undertakings subsequently given shall be deemed to be an integral part of the ratification, acceptance or approval of the Party so notifying, and shall have the same effect as from the first day of the month following the expiration of a period of three months after the date of the receipt of the notification by the Secretary General.


173. Hungary has no declarations or reservations in respect of the Charter, having withdrawn, on 8 March 2002, the declaration previously formulated in respect of Article 13 of the Charter upon ratification.
Article 12.2
Undertakings - Non ratified

Each Contracting State, when depositing its instrument of ratification, acceptance or approval, shall notify to the Secretary General of the Council of Europe of the paragraphs selected in accordance with the provisions of paragraph 1 of this article.


173. Hungary has no declarations or reservations in respect of the Charter, having withdrawn, on 8 March 2002, the declaration previously formulated in respect of Article 13 of the Charter upon ratification.
Article 12.1
Undertakings - Non ratified

Each Party undertakes to consider itself bound by at least twenty paragraphs of Part I of the Charter, at least ten of which shall be selected from among the following paragraphs:

 

– Article 2,

– Article 3, paragraphs 1 and 2,

– Article 4, paragraphs 1, 2 and 4,

– Article 5,

– Article 7, paragraph 1,

– Article 8, paragraph 2,

– Article 9, paragraphs 1, 2 and 3,

– Article 10, paragraph 1,

– Article 11.


173. Hungary has no declarations or reservations in respect of the Charter, having withdrawn, on 8 March 2002, the declaration previously formulated in respect of Article 13 of the Charter upon ratification.

ACCESSION

to the Council of Europe

RATIFICATION

of the European Charter of Local Self-Government

CONSTITUTION | NATIONAL LEGISLATION

Article 31.1 of the new Constitution stipulates that “in Hungary local governments shall be established to administer public affairs and exercise public power at a local level” while the principle of local self-government is not expressly mentioned.



30Ratified provision(s)
0Provision(s) with reservation(s)
3 Non ratified articles
8Compliant Provision(s)
1Partially Compliant Provision(s)
21Non-compliant Provision(s)