In Hungary, overhead charges are officially fixed, so, compared to other European countries, the rise in prices caused by the energy crisis that has lasted for more than half a year does not affect domestic household tariffs – they are still the lowest in the European Union. Péter Márki-Zay (like previous left-wing governments) would abolish overhead cost reduction and introduce market prices instead of administered tariffs. As a continuation of its analyses in October and November, Századvég estimated how the measure would have affected the expenditures of Hungarian families in 2021.
The overhead policy of Péter Márki-Zay would cause heating difficulties for hundreds of thousands of households
Péter Márki-Zay would introduce market prices instead of administered prices of reduced overhead tariff. The measure would have caused a total additional expenditure of HUF 366,000 to an average Hungarian family in 2021. The overhead policy of the candidate for prime minister of the left would have almost tripled energy poverty in Hungary.
If it was up to Péter Márki-Zay, the overhead bills would be five times higher than they are now
Due to the overhead cost reduction, a Hungarian household spends an average of HUF 22,000 per month, i.e., HUF 264,000 per year on electricity and gas.
The introduction of market pricing would have increased monthly expenses by an average of HUF 30,000 and annual costs by HUF 366,000.
Due to the energy crisis that broke out in the second half of the year and has deepened since then, the distribution of average expenditure growth within a year is uneven: January bills would have risen by 34 percent (about HUF 8,000) and overhead expenses would have risen by 400 percent in December (HUF 91,000) without the official safety net. This means that if we had the tariff regulation supported by Márki-Zay in Hungary, an average household would receive an electricity and gas bill for a total of HUF 113,000 in January.
As a result of the price increase caused by leftist overhead policy, the share of energy expenditure in the budget of a family would increase significantly. While an average household currently spends only 9 percent of its spending on electricity and gas, the rate would rise to 44 percent by December, with market pricing and unchanged budgetary constraints, forcing people to significantly curb their spending on other purposes (such as food or education).
Abolishing the overhead cost reduction would be a heavy burden on families
The number of people living in a household has the greatest impact on the rate of energy consumption: for example, the energy needs of a multi-generational family of eight are on average two and a half times higher than those of a single person. Thus, the price increase would hit large families the hardest: the average annual energy cost of a single person would have increased from HUF 190,000 to HUF 450,000, and
that of a family of eight from HUF 480,000 to HUF 1.1 million in 2021.
Since large families spend a larger share of their spending on electricity and gas (13 percent of a household of eight people at current prices), the weight of the price increase would also increase: the share of overhead bills in January would increase to 62 percent with unchanged budgetary constraints.
Energy poverty would be out of control due to market prices
Since the introduction of the overhead cost reduction program, the proportion of households with heating difficulties has decreased the most in Hungary within the European Union and today the European average (8.2 percent) is almost double that of Hungary (4.2 percent). However, Márki-Zay’s overhead policy would reverse this favourable trend and push hundreds of thousands of families into energy poverty.
As a result of market pricing, the proportion of energy-poor households would have risen to 12 percent by 2021. This means that the number of families with heating difficulties would have risen from the current 172,000 to 520,000, so an average of more than a million people would have had to give up the comfort of a heated home last year. It is important to note that as last year’s price increase was concentrated in the second half of the year (and prices continued to rise), the proportion of families living in energy poverty would rise even more drastically today: by December 2022, the number of households with heating difficulties could exceed one million as it would affect two million people.
Data used and method applied
In order to determine the tariffs calculated on the basis of market prices, the item of „energy charge” included in the components of electricity and natural gas tariffs in households, which was published by Eurostat in the first half of 2021, was adjusted based on the average monthly prices of the Hungarian Power Exchange and CEEGEX (Central Eastern European Gas Exchange) in 2021. The rate of VAT of the tariffs have been modified proportionately. The euro exchange rate was calculated based on the monthly average data of the Magyar Nemzeti Bank. The breakdown of household expenditure by income and living together was carried out on the basis of the latest available Household Budget and Living Conditions Survey of 2019 conducted by the Central Statistical Office. The source of energy poverty data is Eurostat. The estimated value of the indicator for 2021 was estimated on the basis of the co-movement between the price changes before the overhead cost reduction and the past evolution of the proportion of households with heating difficulties.