The majority of the changes in the local council system will take place in 2013, State Secretary for Municipal Affairs at the Interior Ministry András Tállai announced. From January, the State will take over a significant proportion of the burdens from local councils, primarily within the fields of education, healthcare and social affairs, he stated, adding that both the tasks and budgets of local councils will be significantly modified.

On Wednesday, the Government decided to approve plans to assume debt from 1956 municipalities before the end of the year. The State Secretary underlined that the Hungarian Government decided in 2010 to tidy up public administration and reorganise the local council system. At that time, municipalities were in deep crisis, he added, characterised by high levels of debt and a lack of sufficient funds to cover operative costs and development tasks. Therefore, drafting a new local council law was necessary in order to ensure operability, he said.

State Secretary Tállai highlighted that, with the 2013 budget, the new financing system for local councils will be established, based primarily on task financing instead of the personal income tax based normative system currently used.

He stated that both the 2012 and 2013 budgets will have to be modified to accommodate the debt takeover, but the scheme will have no impact on Hungary's deficit or state debt, as these have been calculated with the municipal debt portfolio taken into consideration. The takeover will be implemented by the Ministry for National Economy and the Prime Minister’s Office, under the coordination of the Ministry of Interior, he added, while technical details will be worked out by the Government Debt Management Centre (ÁKK) by 30 June 2013.

The State Secretary highlighted that the Government expects the state will have to spend 95-100 billion forints on fully assuming the debts amassed by small municipalities (populations of less than 5,000). The debts of larger communities, totalling 512 billion forints, will involve interest payment and will pose annually expenditures of 50-100 billion forints for the central budget.

In order to prevent such a level of debt accumulating in the future, regulations should be tightened, the State Secretary added, stating that this is also ensured by the fact that from this year the stability act regulates borrowing and the issuing of bonds by local councils.

Government Spokesperson András Giró-Szász stated that as a first step the Government plans to reach an agreement with local councils, while for the moment only preparations for future discussions will be initiated with the banking sector. The Spokesperson emphasised that the Government is conscious of credit rating agencies’ protocols and will decide on the method of debt assumption, while remaining fully aware of its responsibilities.

(Ministry of Interior)