Orbán vs. social protection

The situation in Hungary has been the subject of intense debate in the European Parliament, with Hungarian Prime Minister Viktor Orbán in attendance. The government’s initiatives have caused concern about diminished freedom and, more importantly, the serious decline in democracy embodied in the new constitution. The European Commission has taken, or is likely to take, measures to address these concerns.

If Hungary does not meet its budgetary commitments, the Commission hasn’t ruled out the possibility of freezing the Cohesion Fund resources to which it is entitled. Hungary’s deficit is the most disturbing of the five countries targeted by current community deficit reduction procedures (Belgium, Cyprus, Malta, Poland and Hungary). As the country is not part of the Eurozone, the same rules do not apply; cutting off funding is therefore an option.

As for the social aspects, it is useful to establish a cause and effect relationship between these concerns and the constitutional reform process. This “liberty-cidal” constitution was not in fact inspired by questions of law, values and democracy.

In September 2011, the Magyar Parliament passed a law taxing severance pay collected by civil servants and public employees. Severance packages in excess of €10,000 are taxed at a rate of 98%. Moreover, the law is retroactive.

When the Constitutional Court declared this measure unconstitutional, the government retaliated by using its 2/3 majority to vote a law revising the Court’s role. This process began by eliminating judicial review of the county’s finances, and ended up doing away with the Republic itself!

On the topic of social protection, the excellent news site Metis – Correspondances Européennes du Travail addressed the Hungarian situation in one of its latest issues, analyzing the December 21, 2010 law nationalizing pension funds. In the words of Metis:

“Pensions rest on three pillars: the state, private pensions since 1997, and voluntary schemes. Everyone who entered the workforce after 1997 was obligated to participate in a private pension plan. The money came rolling in, while the government saw its own fund dwindle. Aware of the significance of this private savings (1% of GDP), Hungary tried to convince the EU to consent to a deficit greater than 3% The EU refused.

How could the government get this money back to replenish the public coffers? By preventing Hungarians from contributing to private schemes. In November, the government decided to give citizens the option of keeping their private plans. However, 75% of contributions are paid by employers, who can only contribute to the state fund. Hungarians must carry out an administrative procedure with their pension fund by the end of January; otherwise their contributions will automatically be directed to the state. The measure concerns three million people. The government is thus taking hold of 3 trillion Hungarian forints (€11 billion). Part of this sum will wind up in the central budget, while the rest serves to pay down the public debt (80% of GDP). The state will meet Maastricht criteria by spending resources of private pension funds. According to Agence France Presse, the 2011 budget could run a surplus of 5% of GDP, compared to a 3% deficit without this reform!”

According to the European Commission, “We are concerned about the latest announcement by the Hungarian authorities regarding the pension system. In Hungary, they seem to reflect the intention to completely abolish the compulsory private pension pillar.” The Commission “would be concerned if the wealth accumulated in pension funds were to finance current expenditures, as seems to be the underlying assumption of the draft budget for 2011.

Tamás Gyulavári, a professor at ELTE University in Budapest, points out that “As there is no community law governing pension funds or termination of employment contracts, it is impossible to turn to the European Court of Justice.”

He continues, “As for the media, what is happening now is outrageous from a legal point of view. The government is extremely intelligent; it uses all possible means (particularly loopholes in EC law) for very dubious purposes. With the help of independent law firms, it rushes to change laws in as little as a week or two, bypassing the usual legislative process.

What is most distressing is the prospect of current and future pensioners losing their rights. The pension funds have taken their case to the European Court of Human Rights.