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Hungary convergence plan details planned savings through labor market and disability pension reform

The planned reforms to Hungary's employment and labor markets as well as to the disability pension system contained in the government's updated Convergence Program are expected to reduce budgetary expenditures in these areas by HUF 15 billion this year, by HUF 288 billion in 2012 and by HUF 342 billion in 2013.

Several of the planned savings will come from steps tightening the availability of the various unemployment or social and health support schemes in a bid to encourage people to rejoin the workforce. In a parallel move, a package of legislative amendments aimed at making the labor market more flexible are expected to be submitted to Parliament as early as the spring session.

The updated Convergence Program submitted to the European Commission and published on April 15 stipulates budgetary savings of HUF 88 billion in 2012 and HUF 117 billion in 2013 through a review of qualification conditions for granting disability pensions and an overhaul of disability pension allowances. A review will start already this year, and is expected to cut related spending by HUF 13 billion.

National Economy Minister György Matolcsy announced on April 13 that the review is expected to help 100,000-150,000 of Hungary's current 350,000 disability pensioners return to the workforce through part-time work or as part as the government's new public work program announced in January.

Planned amendments to the old-age pension system would result in relatively minor savings. The convergence plan foresees to save HUF 3 billion in 2012 and HUF 6 billion in 2013 from changing the rules on pension increases, and expects HUF 2.5 billion less expenditure, first in 2013, from curtailing or eliminating the special early retirement schemes for special professions (such as policemen, firemen, soldiers). The termination of special pension rules in the armed forces would save HUF 1.5 billion in 2012 and HUF 3 billion in 2013.

The updated program also stipulates budgetary savings of HUF 42.9 billion in both 2012 and 2013 on the reduction of the eligibility period for unemployment benefits from the current 270 days to 90 days and a reduction of the amount of unemployment support granted.

Additional savings of HUF 27.2 billion in each 2012 and 2013 will come from the termination of a 90-day job-seeking assistance following expiration of unemployment benefits.

The convergence plan stipulates savings of HUF 41 billion in both 2012 and 2013 from the overhaul of the present wage supplement system, amounting to the minimum old-age pension amount, or HUF 28,000 a month currently, paid to unemployed people who have participated in public work programs.

National Employment Service data indicate that 133,000 people were eligible for unemployment benefits, while 73,000 were eligible for the 90-day job-seeking assistance and 194,000 were eligible for wage supplements in March.

The plan expects to save HUF 40.5 billion in both 2012 and 2013 through the replacement of part of the active labor market and vocational training provisions through European Union funding serving the same purpose.

The government plans a nominal freeze of family benefits which could result in savings of HUF 18 billion in 2012 and HUF 36 billion in 2013 according to the convergence program.

The program stipulates further savings of HUF 15 billion in both 2012 and 2013 through capping the total amount of social and family benefits that can be granted on various grounds

A review and modification of the conditions of granting sick pay are seen to save HUF 3 billion this year, and HUF 10 billion in both 2012 and 2013.

Legislative changes to be proposed to Parliament yet this spring include increasing the current maximum employment probationary period from three months to six months, making the temporary shifting of workhours easier or allowing employers to unilaterally decide to compensate employees for extra work through vacation time rather than supplementary wages.