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Local government financing to be task-based in future

Hungary's system of local governments is to be decoupled from the personal income tax system; in the future, resources will not be distributed, rather tasks will be financed, state secretary for local government András Tallai said at a press conference on Wednesday.

New regulations will be drawn up for taxes levied by local councils, Tallai said, speaking about a working document on which a new local councils bill could be based. These taxes will grow in scale and new ones could be introduced, but local councils will continue to collect them, he added.

At present, local governments get a defined part of the personal income tax collected from residents in their municipalities.

Local councils that collect a lot of local business tax -- another big source of income for municipalities -- will have to contribute to the development of their area and to operating costs, Tallai said.

Conditions for the use of state subsidies for local councils will become more strict, he said. For example, low-income households will get support directly from the State Treasury in the future rather than through local governments, he added.

The system of debt management will also be made more rigorous, Tallai said. The government earlier said it planned to limit local councils' scope to take on debt.

The working document outlines three "opportunities in principle" for the capital, he said. The first would unify the city government and make prefectures of its districts, the second would keep the system of local governments in districts but redistribute the work load and restructure, and the third would establish a city core and 2-3 districts, eliminating the Budapest local council, he explained.

The proposed new local councils bill is expected to come before Parliament in October and changes could be implemented in 2012-2014.