Despite the increasing international prominence of mayors and municipal networks, local governments across Europe face numerous challenges. In the UK, local councils lack the resources to fulfill their extensive responsibilities, while in France, attempts at decentralization have been hindered by a lack of clarity over the distribution of responsibilities and a relatively high degree of central government interference.
However, in one country, Hungary, the difficulties faced by local governments are of a different nature, resulting from a systematic and deliberate dismantling of local government autonomy since Fidesz’s rise to power in 2010, a somewhat less discussed, yet no less central dimension of Hungary’s democratic backsliding and Viktor Orbán’s ambition to create an “illiberal democracy”.
In this article, I will analyze the mechanisms used by the Orbán regime to throttle local governments in Hungary, placing these developments in a wider historical and comparative context.
Development of Local Governments in Hungary
In 1990, Hungarian local governments replaced the communist council system. During their first decade, Hungarian local governments had access to a relatively wide range of funding sources, such as a percentage of personal income tax collected on their territory, state subsidies, and municipal bonds. However, after 2000, many larger local governments increasingly resorted to borrowing in order to finance their public services and projects, in particular as the percentage of personal income tax received by municipalities decreased.
Since 2010, when Fidesz came to power, the government has limited local governments’ access to revenue sources (notably eliminating their access to personal income tax), while imposing restrictions on their ability to take on debt and reducing local governments’ flexibility in using direct transfers from the state. Notably, this occurred at a time when Budapest and nearly all large cities were controlled by Fidesz politicians. Although the government relieved indebted local governments of some of their obligations, it also centralized schools and hospitals previously operated by local governments.
By 2017, local government expenditure as a percentage of total government expenditure had dropped to only 13% (from 25%), well below the EU average of 23%. Local governments in Hungary are currently highly reliant on a special business tax paid by firms active on their territory, which has heightened territorial inequalities between local governments as well as local governments’ vulnerability to economic and regulatory fluctuations.
Politically Motivated Punishments?
After the 2019 municipal elections, in which Fidesz lost control of a number of large cities as well as Budapest, a new era of intensified confrontation between the central government and local governments began. The central government has often adopted a punitive approach towards municipalities that have elected anti-Fidesz candidates. Once the town of Göd, a suburb north of Budapest, was taken over by the opposition in 2019, the national government created a “special economic zone” that included the town’s large Samsung factory, thus depriving the local government of business tax revenues.
However, nearly all large cities (many led by opposition politicians) have been affected by the so-called “solidarity contribution” which is intended to redistribute money from local governments with a larger tax base to smaller local governments, yet in practice has had the effect of severely deteriorating the finances of large cities such as Budapest, especially given that the government concurrently reduced the scope of the business tax during Covid. Indeed, nearly 25% of the total expenditure of the municipality of Budapest in 2025 is forecasted to go towards paying the solidarity contribution.
Thus, the left-wing mayor of Budapest, Gergely Karácsony – who recently defied the central government’s newly enacted Pride ban by organizing Budapest’s annual Pride parade as a municipal event – regularly accuses the government of aiming to drive Budapest into bankruptcy. However, even some Fidesz politicians, such as the mayor of Székesfehérvár, András Cser-Palkovics, have voiced concerns about the increasing burden on municipal finances that has resulted from the central government’s decisions.
The Orbán government’s behavior towards local governments in Hungary and specifically the municipality of Budapest, which has gained international prominence as a member of the Pact of Free Cities (alongside Warsaw, Prague, and Bratislava) that claim attachment to liberal values, must be understood as part of a wider effort to dismantle checks and balances and to undermine any alternative loci of power besides the central government. The Hungarian government has pursued this objective not only by undermining municipal finances but also by modifying the electoral system for municipal elections only half a year before the 2024 municipal elections, reinstating a proportional representation system for the Assembly of Budapest, possibly in the hopes of dividing the opposition and hampering the effectiveness of the municipal government.
In many respects, these changes serve to compound a pre-existing flaw of the institutional design of the Hungarian capital’s governance, namely the weak position of the Budapest city government compared to the governments of the 23 districts that make it up.
Towards Greater Local Government Autonomy
The European Charter of Local Self-Government, which Hungary has also ratified, obliges its parties to protect local government autonomy, setting out that local governments have the right to manage a “substantial share of public affairs under their own responsibility.” Autonomous local governments are consistent with the principle of subsidiarity, i.e., the notion that decisions should be made at the level closest to the citizen where they can be effective.
The Orbán regime’s actions with respect to Hungarian local governments – namely, the recentralization of competences and the financial destabilization of local authorities – have effectively undermined the principles of local government autonomy established in the European Charter of Local Self-Government. In order to shore up the position of local governments in a national context characterized by the deterioration of the rule of law and liberal democracy in general, it may be worth allowing local governments that fulfill European Union rule-of-law criteria to directly access frozen European Union funds, as the mayor of Budapest has called for.
However, while such changes in the distribution of European funds may help cities committed to liberal democratic values withstand pressure from autocratic national governments, they cannot alone guarantee the realization of local government autonomy. To achieve the latter, national-level reforms to increase local governments’ competencies and tax revenue (as well as their freedom to levy taxes and take on debt) are sorely needed. Until local governments receive such guarantees, preferably in the form of well-entrenched constitutional provisions, they will remain at the whim of the national government, a dependency that is ultimately damaging not only for democracy but also for effective governance.
References
Dr. Bujdosó, Sándor. ‘Változások és lehetőségek az önkormányzati gazdálkodásban’. In Önkormányzatok Gazdálkodása – Helyi Fejlesztés. Pécsi Tudományegyetem Közgazdaságtudományi Kar, 2008. https://ktk.pte.hu/sites/ktk.pte.hu/files/images/kepzes/phd/onk_konf_kotet.pdf.
Dr. Szabó, Tamás, Miklós Merényi, and Fanni Noémi Molnár. Helyi önkormányzatok Magyarországon: a rendszerváltástól a koronavírus-járványig. K-Monitor, 2022.
Összefoglaló a Főváros pénzügyi helyzetéről. 2025. https://budapest.hu/api/file/doc/250529-a-sszefoglala-a-pa-nza-gyi-helyzetra-l.pdf
Lando Kirchmair. ‘International Law and Public Administration: The European Charter of Local Self-Government’. Pro Publico Bono – Public Administration 3, no. 3 (2015): 124–35. https://folyoirat.ludovika.hu/index.php/ppbmk/article/view/2602.
‘Budapest Report Calls for Cities to Directly Access EU Funds – Eurocities’. 3 November 2023. https://eurocities.eu/latest/budapest-report-calls-for-cities-to-directly-access-eu-funds/
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