Disquieting Quiet in Hungarian Social Policy

CENTRAL AND EASTERN EUROPE: TRANSITION AND BEYOND

Disquieting quiet

in Hungarian social policy

Zsuzsa Ferge

Professor of Social Policy, Eotvos University, Hungary

The paper briefly reviews the social policy of the first threefreely elected Hungarian governments. The first two had no

clear ideological profile, while the third one isneoconservative. The new social policy seeks to strengthen

the nation, the family and the “middle classes”. Socialspending is shrinking but skewed towards the better-off, for

instance by non-refundable tax credits. The access to benefitsof the poor and the unemployed has been made harsher. Thesedevelopments have been accepted up to now with quiescence.

The poor have no voice, and the not-so-poor have nosolidarity for fear of losing their advantages. This policy

promotes social exclusion.

The new rhetoric

In Hungary, as in many countries of the region, the system change in 1989helped the creation of a democratic political system, the rule of law and a

market economy. The transformation was followed by an economic crisis, asignificant drop in GDP and in personal incomes, the emergence and rapidgrowth of unemployment and double-digit inflation for years — eventsboth shaping the new institutions and shaped by them. The economystarted to get back to the growth trajectory in 1995, and GDP reached its1989 level in 1999 (Table 1). The social indicators — employment, wagesand pensions — are improving much more slowly.

The transition entailed difficulties that have been extremely unequallyspread. The gap between the lowest and highest income decile has grownsince the late 1980s from about four- to fivefold to about eightfold or moreand seems to have stabilized at this relatively high level (Szívós and Tóth,2000, p. 3.; estimates of the Central Statistical Office). Poverty multiplied.

Until about 1998 the difficulties were often discussed by the media andby the political class. Since then the political discourse has changed. Thenew rhetoric forged by Prime Minister Viktor Orbán paints a quiet, happycountry where Hungarians have a common “dream”. They are together

© International Social Security Association, 2001 International Social Security Review, Vol. 54, 2-3/2001

Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 01248, USA

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building a glorious future having its roots in the equally glorious,thousand-year history of the Christian State. It is suggested by the govern-ment that the problems of the past ten years are on the way to being solved.The economy is growing fast and this is allegedly trickling down throughwages, more jobs, and redistribution, first of all through generous familybenefits. In the view of the government, inequalities and poverty are nolonger increasing.

In reality the situation is not so reassuring. Although the economy hasbeen steadily growing for four years, there is no significant “tricklingdown”. GDP increased in 2000 by 5 per cent, real wages only by 1.5 percent, pensions and most social benefits even less. The real average wage isabout 15 per cent lower than in 1989, and the average pension is 20 per centlower. Social redistribution is decreasing. Official unemployment rates donot reflect the real state of the job market. While the official unemploymentrate is only around 7 per cent, the employment rate is one of the lowest inEurope and it is increasing only very slowly. The number of active earnerswas around 5 million in 1989, and stood at under 4 million in 2000. In thedepressed regions there are no available jobs at all, and the unskilled la-bour force has difficulties everywhere.

International Social Security Review, Vol. 54, 2-3/2001 © International Social Security Association, 2001

Disquieting quiet in Hungarian social policy

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Table 1. Main economic indicators in Hungary

GDP in real terms Per capita

real income

Real wage per

active earner

Real value of

average pension

Consumer

price index

1989 100 100 100 100 100

1990 97 98 96 97 129

1991 85 97 90 90 174

1992 83 88 89 86 214

1993 82 89 86 83 262

1994 85 91 91 84 311

1995 86 86 80 76 399

1996 87 86 76 69 493

1997 91 88 80 69 584

1998 96 91 83 73 667

1999 100 96 85 78 733

2000 105(?) ... 86 ... 806

Source: CSO (Central Statistical Office) yearbooks.

... = no data.

Regional inequalities (the gap between Budapest and the villages) havesignificantly increased in the past year. The lot of families with children im-proved if both parents had a job; otherwise it stagnated or deteriorated. Therisk of poverty increased among lone parents, members of the Roma ethnicminority, and some other deprived groups, or at least it remains dispropor-tionately high (Szívós and Tóth, 2000, pp. 44-60).

Our main thesis is that, under the third government, social policy is used— more than is usual — as a political instrument to win potential voters. Onthe one hand the government continues to decrease the role of the State atthe national level by reducing taxes and contributions. On the other hand itis restructuring public expenditures in the name of a new conception of so-cial justice. It offers extra funds and privileged treatment to the “middleclasses” and penalizes the unemployed and the poor, both by worse socialbenefits and by harsh policing (called crime prevention). The methods usedare often autocratic. The control over the government’s decisions is signifi-cantly weakened because, for instance, Parliament sits only every thirdweek, or because some windfall gains from unplanned inflation are usedwithout any outside control. These developments, supported by lavish PRactivity, are accepted with quiescence by the public. The poor have novoice, and the not-so-poor have no solidarity for fear of losing their smalladvantages. This policy, sometimes overtly, sometimes covertly, promotessocial exclusion.

Three governments — 1990-2001

Hungary has had, up to 2001, three free elections. All three brought topower coalition governments. The governments have had political labels




Table 2. Rates of economic activity

Economically active

population (in thousands)

Activity rate among

15-74 years old (%)

Activity rate of total

population (%)

1990 4,795 62 46

1992 4,083 59 39

1994 3,752 54 37

1996 3,648 52 36

1997 3,646 51 36

1998 3,698 52 36

1999 3,812 53 38

Source: CSO Yearbooks and data from labour force surveys, 1992-99.

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(conservative, liberal, social democratic), but their politics and social policywere mixed, without any clear political or ideological profile. The bestpiece of legislation in the social liberal or social democratic tradition (theEmployment Act) was adopted under the first conservative government.The purest neoliberal measures were adopted by the second government,with a large socialist majority. The third coalition of two conservative par-ties (Fidesz-MPP and the Smallholders) re-established the universal familyallowance in a clear social democratic spirit, but let it lose its value in linewith a neoliberal agenda. The field of politics is also influenced by thechanging orientation of the governments. The democratic institutions(separation of powers, instances of public control, civil and political rightsand freedoms, social dialogue, the rule of law in general) were built up un-der the first government. They were largely consolidated under the secondone. They have been significantly shaken and weakened since the thirdgovernment has been in power, even though the basic institutions are sur-viving.

The first government (1990-94) had a conservative Christian and nationalistcharacter, promising a “social market economy”. In the wake of the velvetrevolution it developed (or let develop) in 1990 and 1991 the bases of ademocratic structure. This process comprised the separation of powers, in-cluding the Act on local settlements, radically decentralizing central statepower; the creation of a Constitutional Court and other high independentagencies; and the maintenance of the institutions for high-level tripartitesocial dialogue established during the transition negotiations. It did notwant or did not dare to radically curtail social benefits, but the liberalizingreforms started at that time (or even much earlier, in the 1980s, as part of theHungarian market reforms). In order to liberate the market the substantiveprice subsidies that formerly supplemented low wages were rapidly abol-ished without compensation. One of the main social policy Acts was theEmployment Act (1991) that built up the institutions of the labour marketand introduced unemployment insurance. Public health was transformed



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Table 3. Changes in income inequalities, based on the distribution of per capitaincome (multiplier between top and bottom decile, Gini coefficient)

1982 1987 1995/96a 1995b 1998/99

Multiplier between top and bottom decile 3.8 4.6 7 7.5 8.1

Gini coefficient (%) 21 24 30 31 34

Source: 1982-95a: CSO (1998a), p. 11; 1995b-1999: Szivós and Tóth (1999), p. 31.

into insurance (1992). A Law defined elected boards for the pension andhealth funds (the separation of the funds from the budget had alreadytaken place in 1989). The “Social Act” (1993) for the first time regulated so-cial assistance and the operation of social welfare institutions. Voluntaryinsurance was legislated for in 1993.

The second government (1994-98) was a socialist-liberal coalition with a so-cialist majority. At the beginning it had a predominantly social democraticdiscourse. From 1995 on (admittedly under strong economic pressures) itimplemented a fully neoliberal programme. It curtailed the role of theState; it replaced universal benefits with means-tested ones; it cut mostbenefits, and made access conditions more difficult. The gains were insig-nificant (for instance only 6 per cent of families were squeezed out from thefamily allowance), but the popularity and the credibility of the governmentsuffered a long-lasting blow.

In the last two years of the second government, some social liberal meas-ures were added to the neoliberal agenda. In 1996 a Law was adopted toregulate the burgeoning non-profit sector. In 1997 legislation introduced athree-pillar pension scheme. The first pillar consists of a reduced, public so-cial insurance PAYG scheme; the second is a privately managed, individ-




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Table 4. Rates of poverty: The proportion of those who were relatively poor(under half of the median equivalent income) or poor (belonging to the lowestquintile) in some typical population groups, 1999 (%)

1998/99 1999/2000

Total Under half

of the mean

In the lowest

quintile

Under half

of the mean

In the lowest

quintile

Total population 13.8 20 14.6 20

Children aged 0-2 years 31.5 30.5 20.7 36.8

Children aged 7-14 years 20.1 31.1 18.9 28.9

Receiving childcare grant 31.9 40.4 17.1 33.5

Couple with three children 27.3 43.1 14.9 22.2

Lone parent with child 32.5 48.1 36.9 55.4

Roma 60.2 68.9 64.5 85.2

Unemployed head of household 45.8 56 36.9 54.5

Living in villages 16 24.8 16.9 27.5

Source: Szívós and Tóth (2000), pp. 53-56.

ual saving scheme called “private pension”; and the third pillar is volun-tary insurance. The private scheme is still being debated because of its costsand its defective administrative regulation (ILO-CEET, 2000). A new andrelatively modern Child Protection Act replaced the outdated, 80-year-oldone in 1997. The Act on equal opportunities for people with disabilities wasadopted in 1998. These last two Acts define important new institutions andprocedures. Unfortunately, their implementation is extremely defectivebecause of the lack of funds.

The third government, elected in 1998, is, like the first, conservative Chris-tian and nationalist. All these features are much more pronounced than un-der the first government, and the early Christian democratic element ismissing. The main explicit social policy objectives of the third governmentare the strengthening of the “middle class”, particularly the middle-classfamily, and of the “nation”. The latter implies so-called natalist measures toincrease the birthrate, and the granting of special status and benefits toself-declared Hungarians living outside the present borders of the country.(This last legislation is extremely controversial and not yet adopted.) Fromearly 2001 new slogans were added to the former ones. The governmentwants to assure “jobs, education and order”. The ensuing legislation is con-troversial.

There are measures that have a social democratic flavour, like the reintro-duction of universal family benefits in 1998 albeit with decreasing stan-dards, or the launching of some social housing projects in 2001.

There are many conservative-autocratic steps that increase the democraticdeficit. They include the rapid abolition of the health and pension boards(1998) and the renationalization of the funds (1999). From 1998 on, thegovernment gradually transformed the institutions of social dialogue,curtailing the rights of both the employers’ and the employees’ sides inthe tripartite social dialogue. The separation of the State and the church isbecoming increasingly blurred. In 2000 a budget for two years (2001-2002) was pushed through Parliament, thereby ending both annual parlia-mentary control and the parliamentary supervision of unplanned budgetincomes.

One may judge as anti-liberal the freezing of the contribution rate to pri-vate pension funds at 6 per cent instead of the gradual increase to 8 per centprescribed by the Law. (The reason is that the costs of replacing the fundsmissing from the public tier are too high.) The cuts in the disposable fundsof local governments, or the creation of special state funds supervised onlyby the governing parties, also belong in this category.

The neoliberal/neoconservative measures include the deterioration of the



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rules for the indexation of pensions; the cuts in unemployment provision;the abolition of income compensation for the unemployed; the introduc-tion of workfare; the more severe conditions of access to some forms of as-sistance; and simplifying the procedure for eviction. The policing of thepoor and the Roma minority is more frequent and harsher than before. Onemay classify as purely neoliberal the full privatization of the practice ofgeneral practitioners (2000) or the selective privatization of outpatient clin-ics and hospitals. (The more lucrative units are being privatized.)

Meanwhile there are a number of measures that may be labelled consis-tently conservative, offering advantages to the middle and upper strata only.Examples include the (re)introduction and increase of tax allowances forfamilies with children, benefiting the better-off three quarters of the popu-lation. The reintroduction of the employment- and earnings-related child-care benefit abolished in 1995 also belongs here. There are subsidized cred-its and several funds to promote home-building that may be claimed bythose on regular and relatively high incomes and with considerable assetsto mortgage.

In sum, all three governments had a social policy of a fuzzy characterthat does not fit into the widely used classification of welfare regime types(liberal, conservative or social democratic: Esping Andersen, 1990). The ac-tivity of the third government is particularly unclear.

The impact of the structural changes

on central redistribution

The decrease in public resources seems to be a “natural” consequence of theeconomic crisis and the generally low economic development of centraland eastern European countries. State socialist countries allegedly had a“premature” welfare state that had to be cut down to size. In my assess-ment, economic reasons may explain only a temporary retrenchment. Thecuts, however, are meant to be definitive. The reasons behind them are noteconomic but social and political.

The changes in the field of forces and conditions in the countries of cen-tral and eastern Europe were seismic. Private ownership has become thebasis of the market, and also of political democracy. Since most propertywas made public (with more or less violent methods) under the former sys-tem, whole countries had to be reprivatized.

The compulsion of privatization occurred also in the stable market soci-eties of the West, where the role of public ownership was relatively minor.Yet the quarrel over the spoils (trains, former public services) became afierce war. It was already assessed in 1989 for the United States that “priva-




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tization needs to be understood as a fundamental re-ordering of claims in soci-ety” (Starr, 1989, p. 41: my italics). In the central and eastern Europe regionnot only some “spoils” but almost the total of resources has become thestake of reallocation. The reordering of claims in favour of the strong and atthe expense of the weak occurred on a scale and with a rapidity probablynever seen before. Because all this happened under the democratic condi-tions of a new political system, there was no immediate and visible vio-lence as was the case when — earlier in the former Soviet Union, after theSecond World War in the other countries — private property was confis-cated. The members of the political and economic upper strata (the so-called elite) may have changed less now than then (Szalai, 1996). The struc-tural consequences are no less momentous.

This study focuses only on consequences that concern the resources ofthe State for public and particularly for social purposes. All three Hungar-ian governments have made efforts to reduce the state budget. They haveapparently been motivated by well-founded economic reasons as well asby the expectations of supranational monetarist agencies. State incomesand outlays have been almost continuously decreasing since the early1990s in terms of GDP. The state expenditures serving social or cultural ob-jectives had lost more of their value than outlays on administrative, eco-nomic or policing purposes. These last items may even increase under thethird government.

In real terms most social benefits and services lost 20 to 40 per cent oftheir real value between 1989 and 1998. The trend continues under the thirdgovernment. The share of health and education is dropping after 2000 to



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Table 5. Main functional categories of the state budget as percentages of GDP,1990-2002, and changes in the ratios

1991 1995 1998 1999 2002

(forecast)

Change in ratios

(1991=100)

1999 2002

State operation 6.7 5.3 6.3 6.0 5.8 84 90

Welfare functions 37.6 30.5 27.5 26.7 24.0 73 65

Economic functions 6.6 6.1 6.0 6.1 6.3 92 95

Debt servicing and miscellaneous 5.6 11.0 10.6 7.8 5.1 139 91

Total expenditure of budget 56.4 52.6 50.4 46.6 41.2 83 73

Total income of budget 53.5 49.5 44.1 42.9 38.0 80 71

Source: 1991-98: Ministry of Finance AHIR database, main functional categories, based on consolidated data;1991-2002: budget 2000-2002.

about 4 per cent of GDP, though the initial standards were not high either.In real terms the decline may currently slow down or stop. There is no po-litical intention, though, to restore the former standards that were alreadyvery low. The new welfare ratios within the GDP are mostly below theOECD average. As a consequence of the gradual deterioration, the East-West gap in social provision continues to widen.

The new, lower state redistribution is in its turn influenced by the reor-dering of claims. One sign is the continuous erosion of the “common socialcapital” that existed in the public pension scheme, and of all public goodswhose disappearance harms social quality and social integration (Anton etal., 2000). Central redistribution was, of course, never “just”. There have al-ways been benefits allocated in a “positive”, neutral or “negative” way.(The allocation is here called positive if it reduces original inequalities; it isnegative or perverse if the better-off get more from central funds.) For in-stance, the poorer segments of the population had more schools of appren-ticeship, and the upper strata had access to more subsidized holidays ormore university places. Healthcare was often distributed almost neutrally.The neutral distribution may have been intended as an organic element ofequal social citizenship. Negative (or perverse) distribution may have beena quasi-intended outcome: it could be justified on grounds of being less per-verse than a pure market solution, or sometimes it was recognized as an in-equity to be corrected.




Table 6. Main groups of welfare expenditures of the consolidated state budget asa percentage of GDP, 1991-2003

1991 1995 1996 1998 1999 2002

(forecast)

2003

(plan)

Education 56 5.2 4.8 4.8 4.7 4.4 4.2

Health 55 4.4 4.2 4.6 4.4 3.9 3.7

Social insurance, social and

care services

20.7 17.4 15.5 15.2 14.9 13.5 13.0

of which Pensions 10.5 8.7 8.2 8.3 8.2 7.4 7.1

Child benefits 3.4 2.3 2.0 1.7 1.6 1.7 1.6

Housing, regions 40 1.9 1.6 1.4 1.4 1.1 1.1

Leisure, culture 17 1.7 1.5 1.2 1.2 1.1 1.0

Total welfare expenditure 37.5 30.4 27.5 27.1 26.7 24.0 22.9

Source: 1991-98: Ministry of Finance AHIR database, main functional categories, based on consolidated data.1999-2002: budget 2000-2002.

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As far as one can reconstruct the past, it had never yet happened in thepractice of the last three Hungarian governments (or before) that a govern-ment deliberately and publicly privileged the better-off at the expense ofthe worst-off. This practice is now prevalent in Hungary, as illustratedhereafter by some examples. Yet it is accepted with unusual equanimity.Social solidarity seems to be at a low ebb.

Divisive social policy

Social integration should be a basic concern of public policies. Unfortu-nately there are strong signs of social disintegration in Hungary. One of theproblems concerns the Roma population.

The Roma

For at least four decades there have been impressive government pro-grammes to improve the lot of the gypsies. There has never been enoughmoney or real will to implement them. Since the transition, the deteriora-tion in the situation of the Roma minority, who form about 5 per cent of thepopulation, has been spectacular. The proportion of people in poverty (un-der 50 per cent of the mean equivalent income) in 1999 was 14 per centamong the whole population, and 65 per cent among the Roma (Szívós andTóth, 2000, p. 56.). The unemployment rate among gypsies went up to 70 or80 per cent, most of it being long-term unemployment. Their prospects ofreturn to the labour market are almost hopeless. The current governmentrenewed the programme for the Roma. There are some results. There seem,for instance, to be more scholarships for Roma children. The strengtheningof civil efforts among the Roma help particularly in the defence of civilrights. However, money is still extremely scarce for major projects, and po-lice brutality remains frequent.

In the European Commission’s regular reports on Hungary’s progresstowards accession to the European Union, some of the strongest criticismsabout the country and the most urgent need for action were formulated inconnection with the Roma, both in 1999 and in 2000. Meanwhile prejudiceand intolerance against the Roma are growing. The government makesonly scant efforts to fight the prejudices, and sometimes it may wellstrengthen them. For instance, in the case of a special small Roma housingprogramme (at most 300 flats) the Prime Minister explained the need forunusually stringent conditions by referring to bad experiences with theRoma — experiences not supported by any data or research:

The government has to avoid these flats suffering the same sad fate as so many



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others in Hungary. The flats were nicely built, the Roma families moved intothem, and in less than a year people saw that the flats were wrecked, the floortorn up, the windows and doors smashed. People had the feeling that the Stategave help from their taxes in vain.1

Only a minority of the poor are Roma. Many social policy measures harmthe poor in general, and favour the more stable, better established insiders.The point will be illustrated by the handling of unemployment and familypolicy.

Provision for the unemployed

In the view of the third government, unemployment is mainly voluntary.The changes concerning unemployment provision are motivated by thisbelief.

The Employment Act defined the first insurance-based unemploymentbenefits in line with relatively generous European standards. The benefitwas available for two years, it amounted to 70 per cent of the former in-come, and so on. (Later these terms became stricter.) There was no benefitprovided after the first two years. The Social Act adopted in 1993 intro-duced the “income compensation allowance” to bridge the gap left in theEmployment Act. It offered only 80 per cent of the minimum pension tolong-term unemployed workers, but it was available until 1995 without atime limit, and later for two years.

The new labour market offices registered quite well the number of joblosers, unless they escaped into the pension scheme. The highest number,663,000, was registered in the year 1992. This figure gradually declined, toabout 400,000 in 1999. The official unemployment rate fell to 7 per cent,relatively low in an international perspective. Meanwhile the number ofpensioners below the pensionable age limit rose from 260,000 in 1990 to600,000 in 1998, and there are about 500,000 people who withdrew com-pletely from the labour market without any stable resource. Many of themlost any hope of re-entering the labour market and stopped registering.From 1998 on, the rate of registered unemployed has been decreasing. Em-ployment rates, however, are stabilizing at a low level.

The government elected in 1998 made access to unemployment provi-sion more difficult. It increasingly sees unemployment as an event occur-ring through the fault of the unemployed person, and it suspects that cheat-




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1. Radio interview with the Prime Minister, 17 January 2001: www.meh.hu (translation by theauthor).

ing among the jobless is widespread. The Prime Minister said in a speech in2000 that “many are claiming unemployment benefit about whom it is wellknown in their village or in their town that they are in reality not needy, buthave indeed a well-paid job, mostly in the black economy”.2 According tosurvey data, the unemployed form one of the poorest groups (Szívós andTóth, 2000, pp. 11 and 54).

The new legislation on unemployment benefits was adopted in late 1999and entered into force — cynically enough — from 1 May 2000. The amend-ment of the Employment Act reduced the unemployment benefit periodfrom 12 to nine months. The income replacement allowance offered fortwo years was abolished altogether. Only those on the rolls continue to getit, until their entitlement expires. Their number is currently rapidly falling.The unemployed may continue to receive assistance from the local author-ity, but with an additional condition. They have to accomplish at least30 days a year of public work (workfare). Workfare is justified by declaring



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Table 7. Unemployment and unemployment benefits

Year Registered

unemployed, in

thousands,

according to

Hungarian

definition

Rate of

unemployment

according to ILO

definition

Total number

of unemployed

getting

provision

Real value of

per capita

unemployment

provision

(1992=100)

Share of

those getting

unemployment

insurance

benefit

Share of

those getting

some

unemployment

provision

% of all registered unemployed

1990 80 * – * * *

1991 406 * – * * *

1992 663 9.8 518 100.0 72 78

1993 632 11.9 468 78 52 74

1994 520 10.7 399 66 37 77

1995 496 10.2 392 55 40 79

1996 477 9.9 351 49 29 74

1997 464 8.7 332 48 30 72

1998 404 78 300 50 35 74

Source: CSO Yearbooks; CSO (1998b), p. 55; CSO (2000); calculations by Dr. Lilla Garzó.

* = before ILO survey and introduction of unemployment benefits. – = nil.

2. Prime Minister’s state-of-the-nation address, 3 February 2000: www.meh.hu (translation bythe author).

“that it is not the duty of the State to support a society of ‘idles’. The instru-ment to end idleness is public work.”3

All Hungarian governments have declared the precedence of active overpassive labour market interventions. Yet unemployment provision alwaysplayed a dominant role, amounting to about three quarters of all direct la-bour market outlays. While the activity rates hardly changed, the total sumspent on the labour market decreased. Its real value has dropped by about60 per cent since 1992. In that year, 2.8 per cent of GDP was spent on thesetasks; in 1999, when GDP was about the same size, only 1 per cent was de-voted to unemployment. The proportion of registered unemployed work-ers getting some benefit up to the abolition of income replacement benefitremained relatively high, at around 75 per cent. But the structure of thebeneficiaries changed: the number of those getting the better benefit, un-employment insurance, declined to 30 per cent. As a consequence of thesetwo factors, the erosion in the value of the per capita benefits is very signifi-cant: the sums decreased by 50 per cent.

In sum, the situation of the jobless is deteriorating. The benefit rolls areshrinking. The rate of unemployment benefits to wages is declining. Thenumber of men and women giving up hope of getting back to the labourmarket is growing (Nagy, 2000). The new policy towards the unemployedis harming them more than their economic situation. It is depriving them ofthe last shred of their self-esteem: they cannot any longer consider them-selves temporarily out of a job — they are just objects of charity.

Family benefits

The third government calls itself “the government of families”. But not ofall families. In the case of families with children, a clear-cut division iselaborated on the basis of alleged desert. In February 2001, the Prime Min-ister described these groups. The classification explains the policy changesintroduced by the third government.

Each family has to be helped in the way that answers its particular problem.There are families in Hungary that made huge efforts in the last ten years to se-cure for themselves a good standard of living to be preserved. Their concern iswhen thinking about a new child whether their quality of life, achieved withsuch difficulties, would not suffer. Well, I believe that those families that work,and properly educate their children, have the need to pay less taxes from theirearnings . . . And there is another type of families. Children are born to them irre-




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3. Speech of Minister heading the Chancellery (quoted in Népszabadság newspaper, 17 May1999: translation by the author).

spective of their living standard. But the problem with these families is that thechildren are born, but they cannot be properly brought up, because the parentshave no job, or not enough money, to educate their children decently. Thesefamilies should not be supported to get more children; the children arrive any-way.4

The Hungarian system of family provision was relatively well developedfrom the 1960s on. Hungary was, for instance, the first country to introducethe childcare grant, a sort of mother’s wage, in 1967. The World Bank criti-cized the system on two counts in 1991. It remarked that “the system wasthe most generous in Europe”. It added that since a large part of the outlaysprofited better-off families, the reforms should aim at better targeting tolow-income families.5 Under these pressures, and because of the economiccrisis, family provision shrank. Benefits have lost over half of their realvalue since 1990. Meanwhile the structure of the benefits was deeply af-fected by the varying political orientation of the successive governments.

Child benefits. Before 1989, the only important public provision in cashwas the family allowance. The assistance scheme for children introduced in1974 was ill-conceived and parsimonious. Cash benefits were completedby daycare institutions. The nurseries for the under-3s served around15 per cent of children. The number of children enrolled dropped after1989, but the enrolment rate did not change much, because of the decreas-ing number of births. Exceptionally among the transition economies, thecoverage of kindergartens in Hungary remained at its former level, over95 per cent. Both institutions have become more expensive, but poorfamilies can get some help. The public policy orienting these institutionschanged perhaps more than the coverage. The first government did not ap-prove of working mothers. It abolished statutory public support for thenurseries. The second government reintroduced the public support, andthe third government did not change it. The first government attemptedalso to restrict universal access to the kindergartens, but this attempt failed.One of the main changes is the “pluralization” of childcare institutions:there are private (paying, very expensive) kindergartens, some are run byNGOs, and an increasing number are run by the churches. There may befee-paying extra (for instance, language) courses in public kindergartens,too. Another change is decentralization. The institutions are financed bythe local authorities. They get targeted grants from the budget, but the state



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4. Prime Minister’s state-of-the-nation address, 1 February 2001: www.meh.hu (official trans-lation, with minor corrections by the author).5. SAL II (Second Structural Adjustment Loan), para. 73, 1991.

norms are insufficient. The standard of the institutions is therefore differ-entiated according to the resources and the priorities of the local authori-ties.

The structure of the cash benefits profoundly changed. The number ofthe types of benefit increased, and the system has become more frag-mented. The once all-important family allowance lost two thirds of itsvalue. Social assistance for children spread. Under the first and third gov-ernments, pregnancy gave a right to some benefit and cash benefits werecompleted by a tax allowance for children.

Benefits for everybody. In order to boost the birthrate, a pregnancy supple-ment was introduced in 1992 as a universal benefit equivalent to the familyallowance from the third month of pregnancy. It was phased out in 1995then reintroduced from 2001 on, but only as a tax allowance. Poor mothersdo not receive it.

The family allowance remains the biggest item among family benefits un-til 2002. Its level increases up until the third child. Lone parents and chil-dren with a disability get a higher allowance than two-parent families.The allowance was employment-related until 1990, universal until 1995,means-tested between 1995 and 1998, and again universal after 1998. Thereal value of family allowance fell by over 50 per cent between 1990 and1998, and by a further 15 per cent between 1998 and 2002. Thus, in 2002 itwill shrink to about one third of its original 1990 value, and from 3.1 to0.8 per cent of GDP.

The rules on access to family allowance were changed in 1998. Suspicionabout families that do not educate their children properly was behind theswitch from a universal family allowance to a school attendance allowancein the case of schoolchildren. Since then family allowance has been uncon-ditional for children under 6, and is related to regular school attendanceover 6. If the child has more than ten hours of school absence unaccountedfor, the headteacher has to notify the town clerk of the local administration,who has to mobilize the child protection service and then the publicguardianship authority. Monitoring research carried out on behalf on theministry6 shows that the administration of the new benefit is extremelycomplicated and unreliable. The network of child protection agencies is in-complete and personnel is insufficient and underqualified, particularly inlocalities with child protection problems. Professional help is scarce. Thechange from family allowance to school attendance allowance may havebeen motivated by good intentions. Yet its outcome is more costly admini-




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6. Iskoláztatási támogatás [School attendance allowance]: research carried out by the NationalInstitute for Family and Social Policy, draft of October 2000.

stration, growing distrust of “undeserving” families, and no improvementin genuine help to children in distress.

Benefits for the better-off. The tax allowance for children was first intro-duced under the first government at a relatively low level. It was abolishedin 1995 and reintroduced in 1999. It is differentiated only by the number ofchildren. It is the only child benefit that is being radically increased underthe third government, particularly for large families. It was never a refund-able tax credit, and has remained reserved for those who paid enough taxto deduct the allowance. In practice between 60 and 80 per cent of familiespay enough tax to make full use of it. Families with many children are lessable to use the full credit than smaller families.

Benefits for the poor. The Child Protection Act adopted in 1997 introduced,for the first time in the history of the country, statutory income-tested childprotection support, abolishing the former highly discretionary assistancescheme. The condition of access was that the per capita income of the fam-ily had to be below 80 per cent of the pension minimum. In that case eachchild had a right to 20 per cent of the pension minimum. To mark the differ-ence with the past, assistance was renamed “support”.

This is the only assistance scheme for families with children, but it is in-dividualized. As remarked above, access depends on per capita income,and the support is a flat-rate sum for each individual child. It does not takeinto account the conditions of the family as a whole. In most central andeastern European countries aspiring to join the European Union, there is, atleast on paper, a minimum income defined according to the type and sizeof the family. The Minimum Income Guarantee (MIG) assures that the in-come of the individual or the family attains a predefined level. This meas-ure may offer real help against poverty, as is the case in the Czech Republicand Slovenia, or may be only a declaration of intent (Phare Consensus,1999: Vol. 2, p. 169). There are two exceptions to this rule: Poland and Hungary.In these countries, no guaranteed minimum exists. In Poland, though, theassistance is adjusted at least to the size of the family. In Hungary, up tonow no government was concerned enough to improve the methods of as-sistance, or to pay attention to the poverty gap of the family. Thus, the childprotection support has from its inception been a calculable but otherwiseinadequate scheme.

The number of recipients rose from about 650,000 in 1997 to over 800,000in 1999. It is not known whether child poverty grew, or the new scheme of-fered more easy access. Statistics suggest that about one third of childrenlive in poverty, so that the high number of claimants is, on this ground,probably justified. The authorities thought otherwise. They affirmed onseveral occasions that 8 to 10 or even 20 per cent of families were claiming



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the money unlawfully. (There is no research on this point.) The Law wasamended on the basis of these allegations in late 1999. The conditions weretightened. Over and above the income test, the local authority may use anasset test and home visits.

The budget for 2001-2002 again modified the scheme. The oppositionhad long suggested introducing a benefit that could play the role of a re-fundable tax credit. On a sudden impulse, the government renamed thechild protection support “supplementary family allowance” and conveyedthrough the media the impression that this was a brand new benefit com-pensating those who could not make use of the tax allowance. In reality, thechanges weakened some social rights. Not only the name was changed. Themechanism for calculation (20 per cent of the minimum pension) was aban-doned as well as automatic indexation. The sum for 2001 was slightly in-creased as compared with the original sum (HUF 4,000 instead of 3,660), butParliament will decide about further occasional increases (US$ 1 = HUF 286approx.). Also, there is strong pressure from the government to increasethe scope for discretionary decisions at the local level to reach the “trulyneedy”. Thus, the calculability of the benefit was weakened.

The renamed “supplementary family allowance” — as suggested above— does not take into account the needs of the family. In contrast to the fam-ily allowance it is flat rate, independently of the number or the healthof the children, or whether there are one or two parents. Its sum is lowerthan the tax allowance, particularly if there are three or more children. (Themonthly sum per child in 2001 amounts to HUF 4,000 in the case of assis-tance, and to HUF 10,000 in the case of the tax credit.) The child protectionsupport scheme is therefore ineffective in combating child poverty.

The Law on the child protection supplement was adopted in 1997 — itsdefects cannot therefore be attributed to the third government. The re-proach one may make of the current policy, however, is that, instead of aradical transformation of the Law, there were only minor corrections. Moreimportantly, the recent changes in the assistance scheme and tax creditscheme show a major inequity detrimental to the poor.

Maternity benefits. The system of maternity benefits was built up gradu-ally from the 1960s on. It always gave priority to giving birth and care forsmall children over the long-term upbringing of children. The emphasis ongiving birth has become stronger in recent years. Also, there is a shift inprovision towards the better-off. This is in line with the intended increasedsupport to the middle classes. The intention is implemented through the re-introduction of earnings-related schemes. These help better educated (andtherefore better-off) women more, since uneducated young women rarely




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find a job. There are some universal and some earnings- and employment-related maternity benefits, but none that would particularly favour thepoor or lone parents.

Universal maternity schemes. The one-time birth allowance is a flat-rategrant offered to all those who had four medical visits during pregnancy. Itwas replaced by the pregnancy allowance in 1992, and reintroduced in 1995when the pregnancy allowance was abolished. Since then it has remainedin place.

The Child Care Grant (GYES) was introduced in 1967. It is a flat-rategrant for mothers or fathers to stay home with the child until its third birth-day. It was originally universal, then means-tested between 1995 and 1998,and since then universal. The Child Support Grant (GYET), introduced in1992 as a means-tested flat-rate grant, is for mothers to stay home if theyhave three or more children under 10. Its level is equal to that of the GYES.It also became universal in 1998. The flat-rate sum of the two benefits is cur-rently equal to the minimum pension, which is rather low, slightly morethan half of the subsistence level. It has lost about 15-20 per cent of its realvalue since 1990. The GYES amounted to about 46 per cent of the net wagein 1990, and 31 per cent of it in 1998. There are about 200,000 mothers (veryfew fathers) on GYES, and they belong to one of the poorest groups. Theimprovement of the GYES is not on the agenda.

Employment-related maternity benefits. One benefit is the traditional insur-ance provision, the pregnancy-maternity benefit. It offers 24 weeks of paidleave, its condition of access is 180 days of employment and it is insurance-funded, amounting to 70 per cent of the former wage. Rarely mentioned isthe fact that it was taken up by about 40 per cent of mothers in 1990, whilein 1999 only 25 per cent of mothers used it, because of the low employmentrate of young women.

The earnings-related Childcare Fee (GYED) was first introduced in 1982as an insurance benefit. It was phased out in 1995, and reintroduced in2000. Its condition of access is similar to that of the pregnancy-maternitybenefit. It also amounts to 70 per cent of the former wage, but with a ceilingthat was radically increased in 2001. Since its reintroduction, the employ-ment- and earnings-related GYED has been financed from the budget,which seems to be an unusual arrangement. Because of the low employ-ment rate of young women, there are fewer mothers on GYED than earlier.In 1990, 40 per cent of mothers were on the flat-rate GYES and 60 per centon the earnings-related GYED. In 2000, the proportions were reversed(63 as against 37 per cent). Meanwhile, the gap between the two benefits in-creased. The GYED was about 50 per cent higher than the GYES in 1990,whereas now it is twice as high. It has to be added that neither the tax credit



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nor the GYED is particularly high. The problem is that the other provisionsavailable to the poor are not only lower but much too low.

The government is handling family benefits as a priority issue. ThePrime Minister told Parliament in presenting the budget that “families, andhence family policy, form the heart of the government’s budget proposal”.In fact only the tax allowance was generously increased. The real value offamily benefits without the tax allowance hardly grew between 1998 and2002 (3 per cent). With the tax allowance there is a 30 per cent real increase.In a longer perspective, the system delivers less both in real terms and inpercentage of GDP than at the end of the 1980s or even in 1994. In 2002 thereal value of all family benefits, tax included, will fall to 88 per cent of thelevel of 1994. In terms of GDP the total sum amounted to 3.5 per cent in 1994and 2.3 per cent in 2002 — only 1.7 per cent without the tax allowance.

The government evaluates current family policy rather favourably as itsoutcome corresponds to the original intention to support the middleclasses. In our assessment the outcome is inequitable. The absence of publicconcern about poverty and basic insecurities bodes ill for the future.

Conclusion

Hungarian social policy over the past ten to 12 years underwent deepchanges. The positive side of the transition is the unfolding of the marketand the creation of the institutions of democracy and the rule of law. Butthere are many dark sides. Some changes reflect global trends and suchpressures of global capitalism as the growth of social inequalities, the with-drawal of the State to liberate the market, the privatization of former collec-tive or public goods, the spread of marketization, or even (as a reaction) thestrengthening of nationalist feelings. Some other changes are apparently“home-made”. The third Hungarian government certainly follows an idio-syncratic political line. The prioritizing of the better-off, and the severe andoften punitive handling of the poor, is not a part either of a global or of aEuropean accession scenario. The emptying and formalizing of social andcivil dialogue and the weakening of all countervailing powers and of thecontrols on government do not fit any broad agenda either.

The respect for basic “western” values like social integration, solidarityor distributive justice is absent from home public policy. Not even lip serv-ice is paid to them. This makes it difficult to put them on the agenda of pub-lic discourse. The social problems are becoming hidden and the new, oftenpunitive measures are accepted with silent quiescence. The poor have aweak voice. Those favoured by the government have no interest in a thor-ough analysis. The government itself is more interested in building a rosy




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and reassuring image of the country than dealing with problems that maytake years or decades to resolve. “Order” seems more important than freedebate about difficulties to be solved or created anew. The newly won free-doms are not used as they could or should be.

The consequence may be that Hungary, preparing to join the EuropeanUnion, may destroy or weaken social and even political institutions whichmight ultimately become conditions of admittance. This outcome may beavoided only if civil society becomes more active in defence of its social andpolitical rights, and in defence of democracy.

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Disquieting Quiet in Hungarian Social Policy

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