Orbán Government Expands Levy, Withdrawing Funds from Additional 124 Municipalities as a Form of Solidarity Contribution to Reduce its Own Expenses
Last year, the cabinet withdrew funds from 724 municipalities, and this year, the number has risen to 848.
The Ministry of Finance no longer denies that the solidarity contributions collected from municipalities are not directly redistributed to poorer communities but are instead poured into the state budget, specifically into the municipal sector, as revealed in the ministerial response to a public data request submitted by Péter Niedermüller, the mayor of District VII.
Among other inquiries, the district leader sought information on which governmental institutions decide on the distribution of support, the criteria involved, and the legislative basis for these decisions. He also asked whether there is a list of municipalities eligible for support that is updated periodically. The Ministry of Finance (PM) did not respond to this query. However, they reiterated that "through the solidarity contribution, municipalities in exceptionally favorable financial situations support those in less favorable conditions." (Not entirely voluntarily, as indicated by the administrative lawsuit initiated by the capital city's municipality.) The government decides which municipalities are considered "wealthy," setting the tax amount based on per capita tax capability defined in the annual central budget law.
The PM subtly hinted that "only one municipality, the capital city, has not fulfilled this obligation," suggesting that Budapest did not pay. However, the state has collected the imposed 58 billion forints for 2023 from Budapest, either voluntarily or through enforcement.
This year, an increase to 848 municipalities is projected to contribute to the solidarity tax, totaling an expected revenue of 310.6 billion forints. According to the PM, this amount has risen due to the increased tax revenue of the affected municipalities. Despite their need for the additional revenue, it will not be retained by them as the municipal sector's balance has fallen into the negative for the third time since 2020. According to a deficit report sent to Eurostat, the sector's deficit stands at 108 billion forints, which municipalities must cover through property sales and depleting their bank deposits.
When asked about the allocation of the solidarity contribution, the PM stated it "forms part of the financial coverage for municipal support," with its regulatory framework defined by the budget law. This year, municipalities will receive a total of 1050 billion forints for their operations, significantly less than the government support provided, with 740 billion coming from the state and the remainder contributed by the municipalities themselves through the solidarity contribution.
In comparison, defense spending for the year has been allocated 1309 billion forints.
Operating the municipal sector costs between 2500-2800 billion annually, with rising expenses not matched by state norms, which are projected to decrease further, with a net allocation of only 686 billion by 2027 according to PM forecasts. With two-thirds of municipalities lacking significant own revenue and dependent on state grants, the redistribution through solidarity tax leads to a diminishing pool of resources. Notably, the capital city is now recognized by the State Audit Office as a net contributor to the budget, paying more into the state coffers than it receives.
The Budget Council has also identified the reduction in municipal support and the rising solidarity tax as risky, noting that the operational state norms already fell short in 2022, with no subsequent increases.
Péter Niedermüller criticized the solidity tax as state profiteering, introduced when municipalities were already struggling with the pandemic crisis. Instead of aid, the state levied taxes, diverting half of the business tax revenue, vehicle taxes, and parking fees, leading to fiscal strains for many municipalities. The criteria and purposes of these redistributions remain opaque, with suspicions of funds being diverted to unrelated expenditures such as airport purchases or company acquisitions.
Niedermüller, boasting prudent fiscal management in his municipality, expressed pride in being able to initiate significant investments. However, the imposition of the solidarity tax, totaling more than 1.5 billion forints this year, with an increase of 600 million to 2.1 billion, has significantly limited their financial flexibility.
Among other inquiries, the district leader sought information on which governmental institutions decide on the distribution of support, the criteria involved, and the legislative basis for these decisions. He also asked whether there is a list of municipalities eligible for support that is updated periodically. The Ministry of Finance (PM) did not respond to this query. However, they reiterated that "through the solidarity contribution, municipalities in exceptionally favorable financial situations support those in less favorable conditions." (Not entirely voluntarily, as indicated by the administrative lawsuit initiated by the capital city's municipality.) The government decides which municipalities are considered "wealthy," setting the tax amount based on per capita tax capability defined in the annual central budget law.
The PM subtly hinted that "only one municipality, the capital city, has not fulfilled this obligation," suggesting that Budapest did not pay. However, the state has collected the imposed 58 billion forints for 2023 from Budapest, either voluntarily or through enforcement.
This year, an increase to 848 municipalities is projected to contribute to the solidarity tax, totaling an expected revenue of 310.6 billion forints. According to the PM, this amount has risen due to the increased tax revenue of the affected municipalities. Despite their need for the additional revenue, it will not be retained by them as the municipal sector's balance has fallen into the negative for the third time since 2020. According to a deficit report sent to Eurostat, the sector's deficit stands at 108 billion forints, which municipalities must cover through property sales and depleting their bank deposits.
When asked about the allocation of the solidarity contribution, the PM stated it "forms part of the financial coverage for municipal support," with its regulatory framework defined by the budget law. This year, municipalities will receive a total of 1050 billion forints for their operations, significantly less than the government support provided, with 740 billion coming from the state and the remainder contributed by the municipalities themselves through the solidarity contribution.
In comparison, defense spending for the year has been allocated 1309 billion forints.
Operating the municipal sector costs between 2500-2800 billion annually, with rising expenses not matched by state norms, which are projected to decrease further, with a net allocation of only 686 billion by 2027 according to PM forecasts. With two-thirds of municipalities lacking significant own revenue and dependent on state grants, the redistribution through solidarity tax leads to a diminishing pool of resources. Notably, the capital city is now recognized by the State Audit Office as a net contributor to the budget, paying more into the state coffers than it receives.
The Budget Council has also identified the reduction in municipal support and the rising solidarity tax as risky, noting that the operational state norms already fell short in 2022, with no subsequent increases.
Péter Niedermüller criticized the solidity tax as state profiteering, introduced when municipalities were already struggling with the pandemic crisis. Instead of aid, the state levied taxes, diverting half of the business tax revenue, vehicle taxes, and parking fees, leading to fiscal strains for many municipalities. The criteria and purposes of these redistributions remain opaque, with suspicions of funds being diverted to unrelated expenditures such as airport purchases or company acquisitions.
Niedermüller, boasting prudent fiscal management in his municipality, expressed pride in being able to initiate significant investments. However, the imposition of the solidarity tax, totaling more than 1.5 billion forints this year, with an increase of 600 million to 2.1 billion, has significantly limited their financial flexibility.
Translation:
Translated by AI
