As an introduction, it is important to clarify that due to the price increase under left-liberal governments, overheads in Hungarian households in the lower income quintile (on average HUF 25,000 per month) had almost reached per capita income (HUF 32,000 per month) by 2010. In other words,
Overhead cost reduction is an indispensable support for those on modest income
Between 2002 and 2010, during the reign of socialist-liberal governments, the market pricing of household energy sources and the resulting increase in utility tariffs place significant burdens on lower-income consumers. The direct consequence of the continuously rising overhead tariffs was that the Hungarian households in the lower income quintile, i.e., the least affluent ones, had only a negligible amount of disposable income after the settlement of utility bills. There is good reason to ask what impact the overhead cost reduction program had on the expenditure and on the heating and payment difficulties of the less affluent. In the next part of its series of analyses on overhead cost reduction, Századvég explores the effects of government measures on those on lower income.
The economic and fiscal policies of the right have significantly expanded the financial room for manoeuvre of the most deprived households
before the overhead cost reduction program, the least affluent households spent almost a month – per capita – net income on utility bills.
This was typical for about 760,000 households, which meant more than 2 million people in 2010. We should also remember that in the period between 2005 and 2012, even though monthly expenditures increased by 20 percent (from HUF 225,000 to HUF 275,000), the less affluent households in question were not able to increase their expenditures on transport, education, or health care to a greater extent, thus, their consumption did not increase significantly. During this period, the members of this group could spend less on clothing, culture, entertainment, or on furnishing.
However, in the years following the change of government, per capita income increased significantly, reaching HUF 59,000 by 2020, due to a decrease in unemployment and an increase in wages. At the same time, the reduction in overhead tariffs compensated for the transformation of the energy consumption structure of this social group, so that the average amount of public utility expenditures was only HUF 26,000 per month. As a result of the trend, the expenditure structure of the lowest-income households changed: while in 2010 they spent on average 14 percent of their total expenditure (HUF 2 million) on overheads, this ratio decreased to 10 percent (HUF 3.2 million) in 2020. It shows that
the civilian government’s overhead cost reduction program has made life easier for 800,000 households on the lowest income, directly affecting 2.4 million people.
Due to the measure, those on the lowest income can spend one and a half times as much on other cultural items as before the overhead cost reduction.
The proportion of energy-poor households has dropped by more than half in ten years
Regarding energy poverty, overhead cost reduction has resulted in significant progress. Prior to the measure,
11 percent of all households (430,000 households) were unable to heat their homes sufficiently and 22 percent of them (880,000 households) had difficulty in paying their utility bills in 2010.
The problem hit those in need harder: 26.9 percent (215,000 households) of 800,000 households belonging to the 20 percent of the lowest income had heating difficulties and 50.6 percent (405,000 households) had payment difficulties. As a result of the overhead cost reduction program, both indicators improved dramatically:
the national average for households with heating difficulties dropped to 4.2 percent and for those with payment difficulties to 8.7 percent in 2020.
The effects of the overhead cost reduction are misrepresented by the left
Many years of practical experience of the overhead cost reduction program show that
the more modest the income of a consumer, the more the burden on public utility charges has been reduced,
allowing those most in need to use these resources for other purposes or shop more. With regard to reducing energy poverty, it should also be emphasized that
the overhead cost reduction has helped some 120,000 low-income families to get rid of heating difficulties and 300,000 to get rid of payment difficulties.
However, left-liberal politicians have been attacking the government’s measure for years, ignoring the positive effects of the overhead cost reduction on the population. In 2013, Katalin Ertsey, a former member of parliament for LMP, called the overhead cost reduction a “cheap bullshit”, while Benedek R. Sallai, also from the eco-party, thought that “It is a much more important goal to reduce overhead costs permanently by reducing consumption than pushing prices down”. In addition, in 2018, Bence Tordai from Párbeszéd believed that the overhead cost reduction program “not only did not help, but it is now clear that it has done harm to the income and wealth of Hungarian households, we simply pay more for overheads than if this famous overhead cost reduction had not taken place”. Then in 2020 he stated that, instead of officially pricing overheads, “consumption needs to be limited to contribute to the reduction in consumption”.
The table below summarizes the full list of left-wing criticisms of the positive effects of the overhead cost reduction on the population and the legitimacy of the measure.
Data used and method applied
The breakdown of household expenditures and estimates for 2010 and 2021 were made on the basis of the survey of the Central Statistical Office on Household Budgetary and Living Conditions (KSH HKÉF) (2005, 2012 and 2019). Six utility tariffs (electricity, gas, water, waste collection, sewage use and replacement of propane-butane gas cylinders) were taken into account in the analysis, but district heating expenditures were not considered in the absence of adequate data. The overheads were weighted on the basis of how much a Hungarian household would have of them in terms of national consumption. The monthly net income per capita was calculated from the database of the Central Statistical Office of Gross and Net Income Per Capita According to Income Deciles. The energy poverty indicators were estimated on the basis of Eurostat and KSH HKÉF.