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4. Central and Local Government Organizations

4.1. Central and Local Governments: Mission and Function

4.1.1. Structure and Regulation

Hungary's state and regional administration changed significantly in 1990, due to a statute concerning local governments. These new administrative units, which enjoy equal rights, and political and economic independence, replaced the hierarchical and integrated system of councils.

In the 1990 elections each village and town elected independent local government and mayor, almost doubling the number of local decision making organizations in Hungary this way. Local governments are authorized by low to administer local affairs.

Regional administration has two levels:

  • The basic one which has priority in delegating tasks is that of settlements. There are approximately 3,200 local governments in Hungary, out of which only some 180 are in towns. Among towns, 22 have got county rank (having more than 50,000 inhabitants or being a county town.
  • The second level is that of counties which are traditional Hungarian administrative units. When the model of local governments was introduced, the 19 counties lost most of their importance. They are now subsidiary administrative organisations with almost no exclusive authority. Their main task is to run cultural, social, educational and public health institutions which provide district functions. As a result of the 1994 statutory modification, the authority of county administration has expanded slightly, though they have less influence on the management of regional development and distribution than the governments of towns and villages.

Besides the elected local governments organizations under public administration control may operate on regional or municipal levels. These organizations are supervised directly by the central government or ministries. On a county level more than 30 types of public administration bodies have developed, which are, in general, totally independent of local governments, and perform tasks which are important from local economic and social points of view (police, environmental protection, public health services, labour and unemployment, agriculture, housing and public construction, system of statistics etc.).

4.1.2. The System of Local Government in Baranya County

302 local governments operate in Baranya county; out of these 7 can be found in towns, including Pécs, which is a county town with county rank.

On the basis of legal regulation, compulsory and voluntary local governmental duties can be distinguished which cover three areas.

  • Local governments, since they belong to state administration, are obliged to organise local services in the fields for which the state is liable by statutory rule. Such compulsory duties are education, medical and social services, public education, protection of children and the young, and public utilities.
  • The second group of tasks is that of administrative duties, the execution of which is shared by the representatives, the mayor and the notary.
  • The third, basically voluntary group of tasks-although some compulsory duties belong to this group as well-is local economic development. It covers planning, regional management, economic subsidization, infrastructure development, settlement marketing, tourism, labour and so on. The means of executing the tasks vary greatly; they include elements of executive power, financing, ownership and business. Local governments act as owners of most institutions of public provision some public services are provided together with external organizations. They are entitled to levy taxes, issue decrees, and have significant impact on different activities of citizens and local organizations. They are also able to influence local life with the help of their own financial means and grants.

The county assembly has special function in providing public services by labour division on a county level. According to the statute, local governments are authorized to operate district institutions, so the county assembly runs institutes that local governments did not claim. These are different institutions (hospitals, old people's home, children's homes, libraries, museums, archives, community centres, institutes of primary and secondary education), and are scattered around the county. Most of them, however, are not as lavish as brighton hotels and other modern facilities and the most important ones and of the highest standard are situated in Pécs, and provide services mostly for the inhabitants of this city.

The administrative activity of local governments covers almost the whole sphere of state administration. Nonetheless, county assemblies have not been given administrative authority in the past four years. Regional administrative duties (in the fields of agriculture, labour, public health, environmental protection and finance) are performed by regional, so called deconcentrated administrative bodies that are subordinate to different ministries.

Local economic development is the domain where local governments have significant freedom as to strategies to use and priorities to set. Hungarian legal regulation does not require local governments to produce plans for local development; only country planning and budget are necessary. To obtain certain governmental development resources it becomes more and more a prerequisite that the applying local government should construct long term concepts and actual programs concerning the development of its region or settlement. Once the currently pending region improvement bill has been passed, the system of regional management on village/town, county and regional levels will be established.

With regard to local economic development, the scope of certain local governments, of course, varies greatly. Small villages are not able to influence local economic processes. Towns and cities have somewhat larger capacity, though the majority of local governmental resources and attention is absorbed by the operation of existing institutions and offices.

The economic and regional development activities of the county assembly are limited, and it possesses mainly coordinating, "soft", indirect measures. The county assembly also owns its institutions; its business property, however, is minimal (county water plant, pharmaceutical centre, chimney sweepers' association, businesses associated with tourism), and it does not have revenues from local taxes and privatization.

Lately the government has taken part in programs aiming to develop rural districts and regions in economic crisis. Within the frame of local financing system, mostly small villages obtained infrastructural development grants, primarily in the fields of sewage, water, and elementary school education. The central government has promoted privatization and the development of large infrastructural systems.

4.2. Priorities and Aims of the Local Governments' Economic and Social Policies

As it has been mentioned earlier, information concerning these issues cannot be detected in the developmental plans or programs of local governments. Nevertheless, it can be stated that in the present system of resources the local governments' efforts are determined by the priorities of state subsidies. They focus on developmental goals which can be subsidized from central resources in accordance with central budgetary regulations.

It is incorporated in the statute concerning local governments that they are obliged to provide healthy potable water by 1994 when the government's mandate expires. This statue, of course, is obligatory for the state as well. The majority of the available resources were absorbed by subsidizing water and drainage investments in small villages. Now we can say that the water program has reached its end in Baranya county. The next step is drainage which is planned in most villages and there are hopes for central subsidies. Another current objective is to establish solid waste managing landfills. This intention is of local initiative and support, but central subsidies are also expected. Therefore, the development priorities of village governments are related to their own infrastructure, and evidently depend on state subsidies.

Basic infrastructural developments appear among the goals of small town governments as well (i.e. water, drainage, telephone, gas, road construction), but certain regional tasks and the support of local economy can also be detected. Small towns have already realized that the efforts to solve the problems of unemployment and to improve economic conditions are of primary interest, and are trying to use their own means to fulfill these intentions. In certain regions the development of tourism is a priority. The tourist facilities of certain small towns and bigger villages are supplemented by the resources of surrounding villages. Local governments have undertaken significant coordination, and have launched enthusiastic marketing programs.

It has become more and more common that local governments try to attract entrepreneurs by offering land, tax allowance, and by providing ready-to-work utilities. Town governments establish incubator houses and business zones to increase capital influx in the region. As a result of changing attitudes, infrastructure and service that are important with respect to the operability of economy (e.g. transport, telecommunications, financial institutions, energy, etc.) are gaining more attention.

Given its size and influence, the development strategy of the county town Pécs should be discussed separately. The local government operates or shares different enterprises; it wishes to set up an industrial park, and pursues significant economic cooperations; its system of local taxation motivates businesses, it offers tax-allowances, and on some occasions provides town property for new businesses. Special priority is given to the regional airport and to efforts which aim to improve facilities (environmental programs, upgrading energy supply, developing the economy and services) and to utilize existing resources more efficiently (scientific and technological zone, industrial zone, conference centre, centre for exhibitions and fairs, upgrading the university).

The primarily obligation of the county assembly of Baranya is to operate its own institutions, and it absorbs the majority of its resources. In spite of this, the county assembly has participated in supporting and coordinating local developmental programs. This activity is becoming more influential as a result of a new bill on area development and the 1994 modification of statute on local governments. The county assembly will have key position in regional development, and will take part in the work of the council on regional development which is to be established once the statute has entered into force. (The chairman of the general assembly will act as president of the council, and the office of the county assembly will be in charge of decision making preparations.) The county assembly will accept the organizational and partly the developmental plan of the county; it will be in charge of operating the regional information system assisting the work of regional management associations, and coordinating affairs with Pécs (the town of county rank) in a joint committee. It will also be involved in regional cooperation; four South-Transdanubian counties have setup a foundation for development, which has already prepared the region's developmental concepts. On the basis of these concepts this region is expected to become a model for implementing Western European type regional cooperation, and is likely to receive central (probably PHARE) support as well.

The county assembly has started the preparation for future regional developmental duties. As a result of its former policy of promotion and financial support, the associations of communal governments have already been established. The county assembly has direct cooperation with these associations, it provides financial support and expertise for the operation. It has started elaborating the regional development scheme, and has established collaboration with local business chambers. It also has a representative in the county's council on labour, and is willing to represent the county's interests on the level of central government as well.

It emphasizes the improvement of transportation, environment, and of external economic competition besides developing tourism and socially disadvantaged areas, and preserving important agricultural territories.

4.3. The Budget of the Central Government and of Local Governments

Local governments are of great importance regarding their role in fiscal policy and the redistribution of national income.

The processes taking place in Hungarian economy are incorporated in the financial balance of the state budget. It is comprised of the following subdivisions:

  • central budget
  • social security budget
  • the budget of separated state funds (these were established to provide for certain central duties, for example the road fund is to develop the network of roads)
  • the budget of local governments.

The subdivisions of the state budget are connected to each other in many ways, though they are considerably independent.

4.3.1. Central Budget

The Parliament decides on the central budget annually. Its main sources of revenues are as follows:

  • corporation tax of economic organizations
  • customs and import payments
  • share in state property
  • value added tax
  • consumption tax
  • personal income tax
  • duties (e.g. inheritance, transfer of property, sale, civil lawsuit, Court and Registry Court dues)
  • taxes and dividends of financial institutions
  • incomes from the redemption of earlier government credits
  • incomes decreasing domestic deficit
  • incomes of central budgetary institutions

Social security income is dominated by contributions, the amount of which is fixed by law. At present, employers pay 44 percent of the employees' wages and employees pay 10 percent of their wages as social security contribution.

The basic functions of social security are as follows:

  • securing the financial coverage of pension, and payment of pension
  • provision for the sick:
  • by medical treatment or hospitalization
  • by sick-pay

The revenues of the state fund originate on one hand from the central budget, and on the other hand from other types of payments.

From 1996 the following separated funds are expected:

Road Fund - its most important revenues come from economic organizations and the citizens:

  • fuel product duty (paid by the first domestic distributor of the product liable to product duty)
  • automobile excess weight duty
  • automobile tax
  • foreign credits

The most important tasks of the fund are maintaining and operating the road network, road and bridge constructions, and improvements.

Water Fund - its revenue is the water supply contribution (water and drainage duties) paid by everyone who uses piped water and drainage.

The most important tasks of the fund are providing central water-related services and supporting water-related investments of local governments.

Labour Market Fund

Most important sources of revenue are:

  • budget subsidy
  • contribution paid by employers, which constitutes 4,2 percent of the employees' wages (at present)
  • contribution paid by employees, which is 1,5 percent of their wages (at present)
  • rehabilitation contribution - paid by employers in case they employ people with impaired capacity for work in less than 5 percent of their total work force (this low-price sanction means 7,000 HUF per capita annually, with respect to the missing number of impaired employees)
  • vocational training contribution - 1,5 percent of employees' wages, paid by employers.

The most important tasks of the Fund are:

  • providing financial support for the unemployed
  • financing retraining programs
  • providing support for economic organizations to run vocational training programs
  • supporting certain economic organizations to create work for people with impaired capacity for work.

National Cultural Fund - its main sources of revenue are:

  • cultural contribution
  • budget subsidy

The aim of the Fund is to support the organization of international cultural events and the creation of cultural and art products.

Central Fund for Environmental Protection - Its main sources of revenue are:

  • legally imposed environmental protection fines
  • fuel product duty (paid by the first domestic distributor of the product liable to product duty)
  • environmental product duty of packing devices.

The most important task of the Fund is to support incentives which directly help environmental protection (for example, economic organizations may apply for support to introduce environment-friendly technology, and to finance environmental protection investments).

Within the state budget the following grants (which are under particular ministries' control and available for developments) are the most important ones for local governments:

The grant of the Ministry for Environmental Protection and Regional Development. Its most important goal is to contribute to the regional development of certain regions (e.g. development of gas distributing system, establishing industrial zones and innovation centres). The source of the grant is the state budget.

The economic development grant of the Ministry of Industry and Commerce, which focuses on the development of commerce and the change of industrial structure; the tourism grant, which promotes tourism; the technical-improvement grant which encourages technical researches and developments.

The sources of the grant are as follows:

  • state budget
  • other, less important payments
  • tourism contribution (paid by economic organizations and entrepreneurs, and it constitutes 2 percent of the annual net income of commercial accommodation)
  • The grant of the Ministry of Agriculture, which supports the investments and development of basic agricultural activities.

The main sources of the grant are as follows:

  • state budget
  • land tax (paid by economic organizations and entrepreneurs who cultivate plough-land, garden, vineyard and forest)

The grants of separated state funds and the ministries are allocated via application. The requirements are published in the Magyar Kozlony or sectoral bulletins, usually every year. The applications are generally open, therefore economic organizations, entrepreneurs, and local governments may enter most of them.

4.3.2. The Economic Operation of Local Governments

To perform public duties, local governments possess assets and budget revenues.

a.) The most important assets of local governments are: public roads, bridges, utilities (water and drainage, cultural institutions, kindergartens, primary schools, secondary schools, libraries, museums), institutions of health and welfare (general practitioners' surgeries, polyclinics, creches, old people's homes), public buildings, other institutions (e.g. mayor's office, office for duties), properties in and outside villages/towns, state owned tenements and immovables for purposes other than dwelling.

Beyond these, local governments possess rights of pecuniary value, e.g. right of lease contract, concession servitude, patent law, and mortgage.

Local governments may venture as well, therefore a certain part of their assets is business asset (e.g. they can be involved in economic organizations, may act as shareholders and so on).

b.) Local governments' budget have several sources of income:

their own revenues:

  • local taxes established and imposed by representatives, such as building tax, realty tax, utility tax of private individuals, utility tax of enterprises, tourism tax, local trade tax. (In general, local governments impose few local taxes since they do not want to burden inhabitants with more taxes besides central ones.)
  • duties which provide revenue for county towns and towns of county rank
  • income from operation, sales, and fees from institutions under its control.
  • the assigned revenues from the state budget, which means reallocation of central taxes to local governments. Among them the most important ones are:
  • a certain amount of personal tax (in 1996 local governments are expected to be eligible for 36 percent of the 1994 personal income tax return.) This amount will not be distributed evenly, however, every local government is entitled to receive 25 percent of the income tax return of its permanent inhabitants. In case of local governments where the proportion of 25 percent is less than a certain amount of money (in villages this amount is 4,500 HUF, and 5,400 HUF in towns), it needs to be supplemented to reach the particular amount.
  • County assemblies are eligible for a personal tax of 145 HUF per capita with regard to the number of the county's inhabitants, and each county assembly receives 65,8 million HUF of personal income tax).
  • local governments are entitled to receive 50 percent of the automobile tax they have collected
  • 50 percent of cash income originating from selling companies established by the local government is the local government's due
  • 30 percent of environmental protection fine, imposed and collected by the local government is the local government's due
  • the state budget supports local governments to perform their duties; this support is defined by normative means.

4.4. The Financial Situation of Local Governments

The proportion of local government expenditures constitutes 15-17 percent within GDP. Their share of state budget is near 30 percent; both proportions have increased over the past few years. Nevertheless, if we examine the rate of local governments' share in accumulation expenditures, we can see that the 50 percent share of the 80s have decreased to 45 percent recently, and the rate of accumulation expenditures have dropped significantly within local governments' expenditures (it dropped from 27 % to 15 % between 1986 and 1992.)

The types of the local governments' budget resources are defined by the statute on local governments, their real volume depends on the budget and budgetary regulations. Local governments possess own revenues (local tax, revenues from their own activities, duties, received funds, fine, income from privatization, selling game license and others; their proportion within the budget of the local government is 26 %); assigned revenues, shared by the state (personal income tax, automobile tax etc., their proportion within the budget of the local government is 13 percent); state budgetary subsidies (normative and target oriented, their proportion within the budget of the local government is 41 percent); social security transfers (15 %) also appear in their budget, and local governments are eligible for taking credit (5-7 %).

The structure of local governmental budget varies greatly, depending on the size of settlement. In bigger settlements and cities the rate of own revenues is higher, which originates from local taxes and business and operation incomes. In small settlements, however, state subsidy represents the only source of income.

The structure of expenditure gives a real picture of the economic situation and the limited possibilities of local governments. The majority of the budget is used for financing the operation and the expenses of institutes and the administration. The rate of accumulation and development expenses in low and gradually decreasing.

The structure of state subsidies and development priorities define the local governments' decision on development and service management. To this extent, predicting the future depends primarily on the central policy of redistribution. The resources from central budgetary connections are expected to be on the level of 1995. The goal to level - off local governments in disadvantageous regions gets more emphasize in redistribution, therefore these local governments may expect more subsidy from a special fund to level - off regional differences. Priority is given to improvements in the production infrastructure, and to the promotion of work for public use.

The future development prospects of local governments in Baranya county heavily depend on the fact whether the regional development fund gets decentralized, and if it happens so, to what extent Baranya county will receive support from it. According to current estimates, the county's facilities entitle Baranya to a bigger share. The county's regional development council will decide on the utilization of subsidies. It is believed that small villages will get less development sources, while more state subsidies will be allocated for regional developmental projects.

Hopefully associations, contracted services, and the spread of profit-oriented or non-profit forms of provision will get more attention.