Hungarian gov't cuts back on personnel costs in state-owned companies

"The example of state-owned enterprises should also be set to manage their resources in the most efficient and cost-effective way possible. Cost savings are therefore being examined by the owners," reads the explanation of the decree published in Monday evening's edition of the Hungarian Official Gazette.

In the decree titled “Government decree on the imposition of a savings measure on state-owned companies”, the Cabinet mentions war inflation and armed conflicts in neighbouring countries as factors forcing companies in Hungary to adapt.

The essence of the regulation is that a company that is directly or indirectly 100% state-owned

must achieve savings in 2025, mainly in personnel costs.

The government's decision also specifies the amount of the savings, stating that they must be at least equal to the pro-rata share of 5% of the companies' personnel expenses as shown in their 2024 accounts for 6 months.

In practice, this means taking 5% of last year's full-year staff costs as a starting point, and then time-adjusting it over 6 months, i.e. halving it. The regulation does not specify why the time-apportionment is necessary, but it is assumed that the government wants to achieve tangible savings in the 2nd half of the year for state-owned companies.

This type of austerity measure is not at all unusual. This Monday's Hungarian Gazette reveals that this is essentially what government decree 216/2024 (31 July) was about last year, and the government has now withdrawn it. The government decision announced barely a year ago stipulated the same for state-owned companies, and more precisely it said: the savings shall be equal to the pro rata temporis share of 5% of the companies' personnel expenses as reported in their 2023 accounts for 4 months.

Detailed requirements

The regulation does not say that companies have to do this by cutting wages and/or staff.

The government will determine the amount of savings for each company within 15 days of the entry into force of this regulation, they add.

Each member of the government may deviate from this rate for the chapter to which it belongs, with the proviso that the combined savings obligation of the companies in the chapter must still be equal to the pro rata share of 5% of the personnel expenses for 6 months as shown in the 2024 accounts.

The companies concerned must pay the amount of their savings to the central budget by 15 December of the year in which the savings are made.

The government has also set serious conditions for the companies concerned.

• Companies cannot meet their contribution obligations by using credit or loans.
• If they fail to meet the payment obligation by the deadline, they will have to save twice the remaining amount and pay it to the central budget in 2026.

A further interesting feature of the government decree is the annex in which the government lists 30 companies that are not affected by the aforementioned cuts. On this point, it is also clear from the document that, in addition to the 30 companies listed below, the austerity measures do not apply to the National Bank of Hungary (MNB) and the companies directly and indirectly controlled by it, the companies under the ownership of the Office of the National Assembly, the companies included in the public assets to be divested pursuant to Article 42/A of Act CVI of 2007 on State Property.

Why is this necessary?

A few weeks ago we reported in detail that the 2025 budget is slipping, and it is no coincidence that the government recently decided to increase this year's budget deficit. The cash-based deficit target has increased by HUF 651 billion, while this year's accrual-based deficit target, adopted by parliament last year, has risen from 3.7% to 4.1% of GDP, although nowhere has the government officially put this on paper.

One of the sad consequences of this year's budget slippage is that public debt as a share of GDP is expected to rise in 2025. This is the conclusion of a recent forecast by the National Bank of Hungary's (MNB) analytical staff.

The other important consequence is that the 2026 budget, which was adopted in the summer, is also on very shaky ground as a result.

State Secretary for Public Finance Kornél Kisgergely told Portfolio earlier that the government has implemented freezes in the central budget to control this year's budget process, and now it seems to be taking another step to control the slipping budget.

Cover photo: the government's Economic Cabinet meeting on 30 June. Source: Minister of National Economy Márton Nagy's Facebook page