Chapter VII: Integritás Hatóság (Integrity Authority)

Overview

Chapter VII covers the entire budget of the Integritás Hatóság (Integrity Authority), an autonomous state administrative body established in November 2022 under Act XXVII of 2022 on the monitoring of the use of EU budget funds. The Authority was created not from an organic domestic policy need but as a direct concession to the European Commission under the EU budget conditionality mechanism (Regulation 2020/2092), in exchange for the partial release of frozen EU cohesion and recovery funds.

The chapter contains a single institutional appropriation unit with no sub-titles. Total expenditure for 2026 is 14,238.2 millió Ft, split between operating costs (8,864.0 millió Ft) and capital investment (5,374.2 millió Ft). There is zero own revenue. The chapter has no EU development budget line.

Expenditure Analysis

Személyi juttatások (Personnel Expenditures)

• Current allocation: 4,534.8 millió Ft

• Classification: Phase-Out (3 years)

• Rationale: Personnel costs represent the wages of the Authority’s staff. The Integrity Authority was established as a bureaucratic response to a political negotiation with the EU Commission rather than as a voluntary-market or rights-protection institution. From an Austrian perspective, its function — monitoring public procurement for corruption risk in EU-funded projects — does not fall within the night-watchman framework (courts, police, national defense). The calculation problem applies: a state agency assessing “corruption risk” across thousands of procurement procedures necessarily substitutes its own political-bureaucratic judgment for the dispersed knowledge of market participants and is structurally unable to process the relevant information efficiently. Private auditing, bond markets, and civil litigation under property rights law are market alternatives capable of performing analogous monitoring without coercive taxation.

  That said, the Authority was created under an international commitment, and abrupt elimination would jeopardize EU fund inflows that currently finance other parts of the Hungarian budget. A 3-year phase-out gives time to either renegotiate the EU conditionality arrangement or transition oversight functions to the courts and competition authority.

• Transition mechanism: Year 1: freeze headcount and begin voluntary separations with redundancy packages; Year 2: reduce staff by 50% through non-replacement of departures and early retirement incentives; Year 3: transfer any residual rule-of-law compliance reporting to the existing Állami Számvevőszék (State Audit Office) and dissolve the Authority.

• Affected groups: Approximately 100–200 Authority employees (based on salary envelope) who hold public service contracts; EU Commission oversight staff who rely on IH reporting; Hungarian entities subject to public procurement oversight.

Munkaadókat terhelő járulékok és szociális hozzájárulási adó (Employer Social Contributions and Social Contribution Tax)

• Current allocation: 662.0 millió Ft
• Classification: Phase-Out (3 years)
• Rationale: These are the employer-side payroll costs attached to the Authority’s personnel. Their fiscal trajectory is mechanically linked to the personnel phase-out above. As headcount declines, this line declines proportionally. From an Austrian standpoint, employer social contribution taxes are a tax on labor, raising the cost of employment above the market-clearing wage and creating unemployment at the margin. Eliminating this line item as part of the broader personnel phase-out removes a distortionary wedge embedded in the Authority’s wage bill.
• Transition mechanism: Tracks the personnel phase-out linearly — reduce by one-third per year over three years.
• Affected groups: Same as personnel expenditures above.

Dologi kiadások (Operating and Material Expenditures)

• Current allocation: 3,667.2 millió Ft
• Classification: Phase-Out (3 years)
• Rationale: Operating expenses cover office rental, IT systems, publications, travel, and the administrative overhead of running the Authority. At 3,667.2 millió Ft this is a very substantial operating budget relative to the institution’s size — approximately 41% of total operating costs — suggesting either overprovisioning, significant IT infrastructure spending, or contracted external services. The same Austrian critique applies: these resources are being consumed by a regulatory agency whose mandate does not satisfy the night-watchman criterion. In a market order, firms engaged in public procurement would privately insure against counterparty and compliance risk, generating demand for private audit and assurance services without a state monopoly.
• Transition mechanism: Year 1: impose a 20% nominal cut on discretionary operating items (travel, events, publications); Year 2: terminate office leases and consolidate into shared government space; Year 3: wind down all remaining contracts upon dissolution.
• Affected groups: Suppliers and contractors providing services to the Authority; tenants/landlords of its office space; IT vendors.

Beruházások (Capital Investment)

• Current allocation: 5,374.2 millió Ft (capital/felhalmozási budget)
• Classification: Immediate Cut
• Rationale: Capital investment of 5,374.2 millió Ft for a regulatory monitoring body — an amount that exceeds its entire annual operating payroll — is a major red flag. Regulatory agencies do not require heavy capital formation; this level of investment is consistent with construction or fit-out of a permanent headquarters building. Committing to large capital expenditure for an institution that is itself a transitional concession to an EU political process represents the classic Austrian malinvestment: resources allocated by political decision into a capital structure that would not be sustained by voluntary market valuation. If the Authority is being phased out over three years, there is no economic justification for building permanent infrastructure for it now. Immediate cancellation of uncommitted contracts and halting of any capital works is warranted.
• Transition mechanism: Immediate: freeze all procurement processes for capital items; cancel any uncommitted contracts. For partially completed works (if a building fit-out has begun), transfer any completed assets to the general state property pool (Nemzeti Vagyonkezelő Zrt.) for future use or disposal. No new capital commitments to be authorized.
• Affected groups: Construction and fit-out contractors who may have signed or be negotiating contracts; the Authority’s leadership whose long-term institutional plans depend on permanent infrastructure.

Revenue Items

Chapter VII records zero revenue across all categories — operating revenue (Működési bevétel) and capital revenue (Felhalmozási bevétel) are both 0.0 millió Ft. The Authority is entirely tax-funded. It collects no fees, charges, or other own-source receipts. There are no EU transfer inflows recorded in the chapter budget itself (though the Authority’s existence is the condition for EU transfers recorded elsewhere in the budget).

Chapter Summary

Classification	Count	Total (millió Ft)
Immediate Cut	1	5,374.2
Phase-Out (3 years)	3	8,864.0
Nominal Freeze	0	0.0
Keep	0	0.0
Total	4	14,238.2

Revenue	Total (millió Ft)
Total chapter revenue	0.0

Estimated fiscal savings:

• Year 1 saving (immediate cut + first-year phase-out reductions): 5,374.2 (capital, immediate) + ~2,955.0 (one-third of 8,864.0 operating phase-out) = approximately 8,329.2 millió Ft
• Full saving at end of 3-year phase-out: 14,238.2 millió Ft annually

Key Observations

• The Integritás Hatóság is one of the clearest examples in the Hungarian budget of an institution whose existence is entirely a function of intergovernmental political bargaining rather than any organic public demand or night-watchman function. Its mandate — monitoring EU fund disbursement for corruption risk — is legitimate in principle but is being performed by a coercively funded state monopoly when private audit, civil litigation, and competition law provide market-compatible alternatives.

• The capital investment line of 5,374.2 millió Ft is disproportionately large relative to the institution’s operating size and is consistent with construction of a permanent headquarters. Committing this capital expenditure while the Authority’s long-term legal basis depends on EU political negotiations represents a textbook case of politically directed malinvestment — resources drawn from the private economy and embedded in a capital structure that serves no economically self-sustaining purpose.

• The Authority’s operating budget (8,864.0 millió Ft) is also notable for its high dologi kiadások (operating/material costs) share: at 3,667.2 millió Ft, operating expenditures are 41.4% of the operating total, while personnel plus contributions account for 58.6%. This ratio suggests significant external contracting, IT infrastructure, or publication expenditure — all of which should be scrutinized for market substitutes.

• Zero own-revenue confirms the full fiscal burden falls on Hungarian taxpayers. There is no mechanism by which beneficiaries of the Authority’s oversight activities (e.g., private firms winning EU-funded contracts) contribute to its cost, creating a classic free-rider dynamic in reverse: the regulated entities bear no direct charge while citizens fund the regulator.

• Any phase-out strategy must be coordinated with the Ministry of Finance and the relevant EU Directorate-General (DG REGIO and DG REFORM) to manage the conditionality implications. The analytical recommendation here is that abolition is justified on Austrian economic grounds; the political sequencing of that abolition depends on renegotiating Hungary’s relationship with the EU conditionality mechanism.