From the 2026 budget audit
Why do 3,177 towns face Budapest, not their own residents?
After the 2011–2013 recentralisation stripped municipal income-tax shares, local governments lost their own revenue base — and now depend on a central formula grant of 347 billion Ft.
Roughly 347 billion Ft per year flows from the centre to municipalities — not because local government is expensive, but because the centre withheld the revenue and now re-allocates it as grants.
What you see — and what you don't
The seen: municipalities receiving operating funds to deliver statutory services. The unseen: the feedback loop that once disciplined local spending — residents who pay the local tax and can see what it buys — broken when the money arrives as a formula grant from Budapest instead of from ratepayers at home.
Objection
"But local governments need funding — cutting this would strand schools and social services."
Answer
No one proposes cutting the operating function. The proposal is to restore a genuine local revenue instrument — a municipal income-tax surcharge or retained property-tax share — so that the grant shrinks as own-revenue grows. A council funded by its own ratepayers is accountable to them; one funded by a central formula faces the allocator instead.
Share if you think towns should answer to their own residents, not to a central formula.
The analyst's verdict
General operating support for municipalities
Rationale
This is the general-purpose operating grant — the block that funds municipal administration, the statutory minimum of local self-government. Local self-government, including a funded municipal tier, is established by the Fundamental Law (Article 31–35) and is a constitutional precondition of the kind the framework recognises: the institutional machinery through which a defined community makes binding collective decisions about itself. The grant itself is not the object of the classical-liberal critique. The object of the critique is that it is a *grant* at all rather than locally-raised revenue. A municipality funded by a central formula faces the allocator, not its own ratepayers; the feedback loop that disciplines local spending — residents who pay the local tax and can see what it buys — is broken when the money arrives from Budapest. The defensible reform is not to cut the operating function but to restore the local revenue base (a genuine local PIT surcharge or a retained property-tax share) so that the grant shrinks as own-revenue grows. Until that structural reform is enacted, an outright cut would simply strand statutory obligations the municipalities cannot fund. The honest interim classification is a nominal freeze: hold the line, let real-terms erosion at 2–3% inflation apply gentle pressure, and treat the restoration of local fiscal autonomy as the substantive reform.
Transition mechanism
Hold nominal allocation flat. In parallel, legislate the restoration of a municipal own-revenue instrument; as own-revenue rises, reduce the formula grant one-for-one so the local budget constraint becomes real rather than centrally cushioned.
Affected groups
All 3,177 municipalities; in the interim, no service disruption — the freeze bites only in slow real-terms erosion.
Free Society Institute
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