Chapter LXIII: Nemzeti Foglalkoztatási Alap (National Employment Fund)

Overview

The Nemzeti Foglalkoztatási Alap (National Employment Fund, NFA) is an extra-budgetary state fund that finances Hungary’s labour-market policy: public works, vocational-training subsidies, passive unemployment benefits, wage-guarantee payments to workers of insolvent employers, and the domestic co-financing of EU labour-market programmes. For 2026 the chapter carries a total expenditure of 557,000.0 millió Ft against 552,200.0 millió Ft of revenue — a planned deficit of 4,800.0 millió Ft.

The Fund is financed almost entirely by an earmarked slice of the payroll levy: 476,800.0 millió Ft of the chapter’s revenue is the “Társadalom- biztosítási járulék Nemzeti Foglalkoztatási Alapot megillető része” — the share of the social-contribution levy assigned to the NFA. This is the analytically decisive fact about the chapter. The Fund does not collect a market price for a service; it is a hypothecated tax on employment whose proceeds are then re-allocated by administrative decision. Every classification below turns on what each spending line does with money that was taken from one set of workers’ wages before they ever saw it.

The chapter’s structure is heterogeneous. Some lines (the wage-guarantee scheme, passive benefits) are genuine insurance-type functions financed by a contributory levy. Others (the Start-munkaprogram, vocational- training subsidies, discretionary employment grants) are administrative allocations whose value the Fund cannot price and whose track record is documented. The analysis separates the two.

Expenditure Analysis

Start-munkaprogram (Start Work Programme — public works)

• Current allocation: 156,000.0 millió Ft (153,038.0 operating + 2,962.0 capital)

• Classification: Phase-Out (5 years)

• Rationale: This is the largest active-spending line in the chapter and the one where the gap between the seen and the unseen is widest. The seen is direct: roughly 67,000 people were in public employment in early 2026¹, paid a public-works wage, doing locally-organised work in Hungary’s poorest settlements. The unseen is the worker whose payroll levy funds the line, and — more sharply — the public-works participant whose years inside the programme make open-market employment less likely, not more.

  The mechanism is now well documented. Public works is a state-run parallel labour market. It does not respond to a price signal for labour; a settlement’s mayor and the county government office decide how many places to open and what work they do. Without a wage set by what an employer would actually pay for the output, there is no signal that the activity creates value at its cost — and the programme’s own evaluations show it frequently does not. Analysis published in the Hungarian labour-market literature found that long, high-hour public- works participation measurably reduces the probability of moving to the open labour market and raises the probability of cycling back into public works². The transition rate is the central number: of those in public works in 2012, only about 15% were working outside the programme a year later; by 2018, in a far stronger labour market, this had risen to roughly 25%³. A programme that returns three in four participants to dependency, or to itself, is not a bridge into employment. It is a holding pattern that the levy-payer funds.

  Hungary’s spending on this is an international outlier. Around 2016 Hungary directed roughly 0.7% of GDP to public works; the OECD average for comparable active-labour-market public-employment spending was about 0.05% — and among the very few countries at a comparable level, those that spend this share do so in far poorer economies on rural agricultural programmes rather than urban-adjacent public-works³. The question this raises is not whether Hungary’s poorest settlements need a labour-market policy. It is whether 156,000.0 millió Ft of payroll levy, administratively allocated, with a documented one-in-four exit rate, is that policy.

  An honest reform does not strand the people currently in the programme. The protected party is real: roughly 67,000 participants, many in settlements where the open labour market is thin and the public-works place is the household’s only formal income. Abrupt removal would push them onto passive benefits or into the informal economy with no transition. The phase-out therefore runs five years, with the envelope redirected as it declines into two channels that the evidence supports better than parallel-market employment: direct wage subsidies tied to placement in actual private-sector jobs (the “Közfoglalkoztatásból a versenyszférába” placement benefit, currently 45,600 Ft monthly, is the existing instrument and the design template⁴), and a needs-based income transfer for those in settlements where no open labour market realistically exists within the horizon. The first channel pays for results an employer has validated with a real job offer; the second is honest about the fact that it is income support, not employment, rather than disguising a transfer as work. Neither requires the state to run a parallel labour market it cannot price.

• Transition mechanism: Linear five-year wind-down. Year 1 closes intake in districts with measurable open-market labour demand (initially the western and central counties, where Budapest-area transition rates already exceed 50%³); subsequent years narrow to the settlements with genuinely absent local labour markets, where the residual is converted to a transparent income transfer rather than carried as public-works payroll. The 2,962.0 millió Ft capital component (tools, equipment for public-works projects) ceases at year 1 — there is no reliance interest in continued capital purchasing.

• Affected groups: Roughly 67,000 current participants, concentrated in Borsod-Abaúj-Zemplén, Szabolcs-Szatmár-Bereg and other north- eastern and southern counties; the local-government offices that administer the programme. The five-year horizon and the placement- subsidy channel are designed so that participants with employable skills are moved toward real jobs with a financial incentive attached, and those without are not dropped.

Passzív kiadások, álláskeresési támogatások (Passive expenditure — jobseeker benefits)

• Current allocation: 222,600.0 millió Ft

• Classification: Keep

• Rationale: This is the chapter’s largest single line and, on the classical-liberal frame, its clearest Keep. Passive jobseeker benefit is a contributory insurance payout: workers pay the social-contribution levy while employed, and the benefit is the claim that levy purchases against the involuntary, insurable event of job loss. It is not a discretionary allocation by political officeholders; it is the return leg of a contribution the worker already made. Abolishing it would not return the levy to workers — the levy funds the rest of the chapter — it would simply confiscate the insurance while keeping the premium.

  Keep is not endorsement of the current design. Hungary’s álláskeresési járadék (jobseeker’s allowance) is paid for a maximum of 90 days — the shortest duration in the European Union, where the common floor is around five months and fifteen member states allow at least a year⁵. The classical-liberal objection to unemployment benefit is the moral- hazard one: an over-long, over-generous benefit subsidises extended search and weakens the incentive to take an available job. That objection does not apply to a 90-day benefit; if anything Hungary has already cut closer to the bone than the moral-hazard argument requires. The line is kept because it is genuine insurance against an involuntary event, financed by the people who draw on it. Operating- efficiency and duration review is legitimate; phase-out is not.

Bérgarancia kifizetések (Wage-guarantee payments)

• Current allocation: 4,000.0 millió Ft
• Classification: Keep
• Rationale: The wage-guarantee scheme pays the unpaid wages of workers whose employer has become insolvent, with the Fund later recovering what it can from the liquidation estate — the chapter’s revenue side shows 400.0 millió Ft of “Bérgarancia támogatás törlesztése” (wage-guarantee repayment), the recovered portion. This is a rights-protection function in the strict sense: it enforces the worker’s contractual claim to wages already earned, when the counterparty cannot pay. The worker performed the labour; the wage is owed; the employer is insolvent. The scheme makes the worker’s prior contractual right effective rather than transferring an unearned benefit. It is small, bounded, partially self-funding through recovery, and consistent with the frame’s core function of contract enforcement. Keep.

EU-s elő- és társfinanszírozás (EU pre- and co-financing)

• Current allocation: 83,000.0 millió Ft (82,799.0 operating + 201.0 capital)
• Classification: Nominal Freeze
• Rationale: This line is the domestic pre-financing and co-financing of EU-funded labour-market programmes. The matching revenue line — “Előfinanszírozott uniós programok kiadásainak visszatérülése” (reimbursement of pre-financed EU programme expenditure), 70,000.0 millió Ft — shows that the bulk of this is a cash-flow operation: the Hungarian state pays first and is reimbursed by Brussels, so the net domestic cost is the co-financing share, not the gross 83,000.0 millió Ft. The line cannot be unilaterally cut without forgoing the EU transfer it unlocks, and it is bound by multi-year operational- programme agreements that run beyond a single budget cycle. The analytical objection — that EU labour-market programme spending is itself an administratively-allocated transfer whose distribution channel is no more market-disciplined than the domestic ones — is real, but the reform path runs through the next operational-programme negotiation, not through a 2026 line cut. Nominal freeze: hold the allocation flat, let real-terms erosion narrow it, and do not expand the programme commitments that drive it.

Szakképzési támogatások (Vocational-training subsidies)

• Current allocation: 70,000.0 millió Ft (69,266.3 operating + 733.7 capital)

• Classification: Phase-Out (4 years)

• Rationale: This line subsidises vocational training — courses, training providers, and training-linked employer support. The difficulty is structural: the Fund administrator cannot know which skills are scarce in which local labour market, because that information exists only in the wage offers of employers who would hire the skill.⁶ A central training budget allocates toward the courses providers are set up to deliver and the ones administrators can credential, not necessarily toward the skills an employer would pay a premium for. The programme’s own labour-market evaluations found that participants who did move from public works to the open market did so because labour demand rose, not because the training equipped them with what the market wanted² — direct evidence that the training content is not tracking the price signal.

  This does not mean vocational training has no value. It means the state’s role should not be to run and fund the training programme centrally. The protected parties are training providers on multi-year agreements and the cohorts of trainees currently enrolled, whose courses must be allowed to finish. A four-year phase-out lets in-flight course commitments run their term while intake is wound down. The envelope is better redirected — where a subsidy is retained at all — to demand-side instruments: a training voucher the worker takes to a provider of their choice, or an employer-side credit for training the employer has identified as needed. Both keep the choice of skill with the party who faces the actual labour-market price, rather than with the administrator who does not. The classification reflects the mechanism — central allocation of a budget that cannot price its output — not the size of the line.

• Transition mechanism: Four-year linear wind-down of central training-subsidy intake; in-flight course agreements honoured to completion; residual support, if retained, converted to a portable voucher held by the worker.

• Affected groups: Training providers dependent on the central subsidy; trainees currently enrolled (protected to course completion). The county government offices that administer training allocations.

Foglalkoztatási támogatások (Employment subsidies)

• Current allocation: 20,000.0 millió Ft (12,630.0 operating + 7,370.0 capital)

• Classification: Phase-Out (3 years)

• Rationale: This line covers discretionary employment subsidies — wage subsidies, employer grants, and assorted active-labour-market support outside the public-works and training lines. It is a discretionary allocation: the county government office decides which employers receive a subsidy to hire which workers. That is a classic public-choice exposure — the benefit concentrates on the employers and intermediaries who receive the grant and know how to apply for it, while the cost spreads across every payer of the payroll levy. The deadweight problem is well known for hiring subsidies: a share of subsidised hires would have happened anyway, so the levy partly pays employers for decisions they had already made.

  A three-year phase-out is appropriate because some current subsidy agreements are multi-year wage-subsidy contracts with employers who hired in reliance on the continued payment; abrupt cancellation would strand those hiring decisions. The placement-benefit instrument (payment to a worker who actually moves into a competitive-sector job, currently 45,600 Ft monthly⁴) is the one component of this cluster worth retaining, because it pays for a validated outcome rather than an administrative judgement; it can be folded into the Start-munkaprogram placement channel. The remainder winds down over three years as existing subsidy contracts expire.

• Transition mechanism: Three-year run-off of existing multi-year subsidy contracts; no new discretionary employer-subsidy commitments from year 1; placement-benefit component retained and merged with the public-works transition channel.

• Affected groups: Employers on current wage-subsidy contracts (protected to contract expiry); the administering county offices.

Működtetési célú kifizetések (Operational expenditure)

• Current allocation: 1,400.0 millió Ft
• Classification: Nominal Freeze
• Rationale: This is the administrative-operating line of the Fund itself — the cost of running the NFA. As the active-spending lines above are phased out, the administrative apparatus that allocates them should shrink in parallel; a programme office is the second-best substitute for a missing market price, and as the allocations it manages decline, so should it. But cutting the operating line ahead of the programmes it administers would simply break administration of spending that is still flowing during the phase-out years. A nominal freeze holds it flat while the substantive lines wind down; the operating line should then fall in the budget cycle that follows completion of the Start-munkaprogram and training phase-outs. Real- terms erosion at typical inflation narrows it by roughly a fifth over a decade in the interim.

Revenue Items

Társadalombiztosítási járulék Nemzeti Foglalkoztatási Alapot megillető része (NFA share of the social-contribution levy)

• Current yield: 476,800.0 millió Ft

• Type: Tax (earmarked share of the payroll social-contribution levy)

• Notes: This is the chapter’s funding base — an earmarked slice of Hungary’s payroll levy. The economically relevant fact is the labour wedge. Hungary’s payroll structure stacks the employer-side social contribution (SzocHo, 13%), the 15% flat personal income tax, and the 18.5% employee social-security contribution on top of one another, so that out of every 100 Ft of total employer cost, roughly 37 Ft reaches the state before the worker’s take-home pay is spent⁷. The standard framing — “the employer pays SzocHo” — misdescribes the incidence. Payroll levies are borne by the worker as suppressed take-home pay: the employer prices the total cost of employment, and the levy is subtracted before the wage offer is made. The worker funding this chapter’s 476,800.0 millió Ft does not see the deduction, because it never enters their gross wage in the first place.

  The wedge does not stop at the payslip. On most of what the worker then spends, ÁFA at 27% — the highest standard VAT rate in the EU — captures a further slice; on fuel, alcohol and tobacco, jövedéki adó (excise) adds more again. The cumulative effective state take from full employer compensation, for a typical Hungarian working household, is materially higher than the visible payroll figure once payroll levies, income tax, and the 27% VAT applied to most of what workers spend are stacked — published OECD estimates for Hungary place the combined tax wedge on labour among the highest in Central Europe⁸. This is the unseen cost-bearer of the entire chapter: the wage-earner whose total compensation is taxed at every layer, funding labour-market programmes — public works with a one-in-four exit rate, training that does not track local skill demand — over which they have no pricing voice. A worker at the median monthly gross wage⁹ contributes, through the SzocHo levied on their employment, several tens of thousands of forints a year specifically to the NFA share — money that, on the programme evidence, frequently funds a parallel labour market rather than a route out of one.

  This is an earmarked tax, not a fee, and it would not disappear if the expenditure lines were cut. The reform implication runs the other way: if the Start-munkaprogram, training subsidies and discretionary employment grants are phased out, the NFA’s claim on the payroll levy should fall correspondingly, and the freed levy capacity should be returned as a reduction in the payroll wedge — the most direct way to raise the take-home pay of the very workers who funded the chapter.

• Distortion rank: 2 — payroll levies are among the most distortionary taxes in the structure, suppressing employment and real wages directly at the point of hiring.

Előfinanszírozott uniós programok kiadásainak visszatérülése (Reimbursement of pre-financed EU programme expenditure)

• Current yield: 70,000.0 millió Ft (69,000.0 operating + 1,000.0 capital)
• Type: EU transfer
• Notes: The reimbursement leg of the EU pre-financing operation on the expenditure side. This is not own-revenue; it is Brussels repaying Hungary for EU-programme spending the state advanced. It disappears if the corresponding “EU-s elő- és társfinanszírozás” expenditure line is wound down, because there is then no pre-financed expenditure to reimburse. Cash-flow item, not a tax.

Egyéb bevétel (Other revenue)

• Current yield: 5,000.0 millió Ft (4,500.0 operating + 500.0 capital)
• Type: Other
• Notes: Miscellaneous Fund revenue — fines, penalties, asset income and similar. Minor relative to the chapter envelope; not a major tax item.

Bérgarancia támogatás törlesztése (Wage-guarantee repayment)

• Current yield: 400.0 millió Ft
• Type: Other (recovery)
• Notes: Amounts recovered from insolvency estates against wage- guarantee payouts. It partially self-funds the Bérgarancia line and would shrink only if that scheme were reduced — which the analysis does not recommend. Recovery revenue, not a tax.

Chapter Summary

Key Observations

• The chapter divides cleanly into two kinds of spending. The contributory- insurance lines — passive jobseeker benefit (222,600.0 millió Ft) and the wage-guarantee scheme (4,000.0 millió Ft), 226,600.0 millió Ft together — are genuine returns on a levy workers already paid against involuntary events, and are kept. The administratively-allocated active lines — public works, vocational training, discretionary employment subsidies, 246,000.0 millió Ft together — are spending the Fund cannot price and whose documented results are weak; they are phased out.

• The Start-munkaprogram is the chapter’s analytical centre. It is the largest active line (156,000.0 millió Ft), it makes Hungary an international outlier in public-works spending (roughly 0.7% of GDP versus an OECD average near 0.05%), and its measured transition rate to the open labour market — about 25% even in a strong labour market — means it functions as a holding pattern rather than a bridge. The phase-out is honest about the protected party: roughly 67,000 participants in Hungary’s poorest settlements are not dropped; the envelope is redirected into placement subsidies for real jobs and, where no local labour market exists, a transparent income transfer.

• The pattern across the phased-out lines is the deepest point of the chapter: discretionary state allocation generates the same misallocation regardless of who administers it. Whether the public-works place, training course, or hiring subsidy is allocated by the current government’s county offices or a future government’s, the administrator still cannot price the output, because the price signal — the wage an employer would pay for the skill or the work — has been replaced by an administrative budget. A cleaner administration redirects the same levy to better-credentialed providers; it does not restore the signal.

• The funding base reframes the entire chapter. The NFA is financed by 476,800.0 millió Ft of earmarked payroll levy — and the payroll wedge it sits inside means a Hungarian working household faces a cumulative effective state take — materially above the visible payroll figure once the payroll, VAT and excise layers are stacked — placing Hungary among the highest tax-wedge countries in Central Europe⁸. The chapter’s reform dividend is therefore not only the phased-out expenditure but the corresponding reduction in the NFA’s claim on the levy, returned to workers as a lower wedge and higher take-home pay.

• Hungary’s 90-day jobseeker’s allowance is the shortest in the EU. The classical-liberal moral-hazard objection to unemployment benefit — that over-long, over-generous benefit subsidises extended search — simply does not bite at 90 days. The passive line is kept not as a concession but because, at this duration, it is straightforward contributory insurance against an involuntary event.

Sources

530. The empirical point — that public-works participants who did move to the open market did so because labour demand rose, not because the training equipped them — is documented in footnote ² above.