The Hungarian overhead reduction became a Prometheus

During the first nine years of the overhead reduction (2013 – 2022), it was not fashionable to talk about the cost of this political abracadabra. Bread and circus games were enough for the ancient Romans, in Hungarian society after 2013, utility reduction was added to this. The so-called (mainly) residential consumers provided with “universal service” did not even pay the cost of public services (electricity, natural gas, district heating and water): the deficit (approx. HUF 300 billion per year) was automatically covered by the central budget. Calculating with averages, the first nine years total approx. It cost the budget HUF 2,700 billion. But no one cared, because utility reduction as a political “buzzword” was popular and brought votes.

The Energy Crisis of 2022 stirred this pleasant lukewarm water.

The diagram below shows nicely what happened.

The price of electricity and natural gas was almost a straight line during the first nine years of the utility reduction. Then between the first quarter of 2021 and the summer of 2022, prices began to rise continuously: as I wrote earlier, Black Friday was August 26, 2022, when Hungarian electricity futures were over 1,000 euros/MWh, and natural gas around 340 euros/MWh. The utility reduction cost a double whammy: the market price of energy in euros became more and more expensive, while the HUF weakened. And this is where the second era of overhead reduction began: numbers that had been carefully hidden until then were revealed.

In a government briefing in April 2022, 1,300 billion forints were thrown into the public consciousness. This was not an intentional misrepresentation, rather the government underestimated the Energy Crisis. They trusted the first law of flying cadets: what goes up, will come down. They were wrong: the good of the Energy Crisis came after April 2022. The Hungarian government was forced to take action: by the summer of 2022, it became clear that the budget could no longer finance the overhead reduction, which had been working perfectly until then. At the end of July 2022, in Tusnádfürdő, it was revealed how much the reduction in utilities costs the budget each year: in 2021 approx. 300 billion forints, but the forecast for 2022 was already 2,000 billion forints per year.

You don’t have to be afraid of big numbers – the ratio is the key here.

The first period of utility reduction (nine years) cost HUF 2,700 billion, while the forecast for 2022 alone was around HUF 2,000 billion.

The overhead reduction turned into a real modern Prometheus for the summer of 2022: he did things that the original creators never thought of. The biggest problem was that the overhead reduction worked as if the supply and demand law did not apply to the Hungarian energy industry. As I mentioned above: the market price of energy rose continuously after the first quarter of 2021, but Hungarian consumption did not decrease: the reduction in utilities cost the budget more and more. This is when the Overhead Protection Fund was created, and when SMEs (restaurants, convenience stores, hotels, etc.) were excluded from the universal service, when museums, swimming pools and libraries were closed, and when the overhead reduction version 2.1 was introduced (average consumption and above the “conscious energy consumption” tariff that is more expensive than the market price).

The covid epidemic was a mild social shock compared to the above reform of utility reduction.

In the words of Attila József, the reformed overhead reduction “… was national in destruction”. Restaurants, convenience stores, etc. excluded from the universal service. a part of them went bankrupt, they could not extract the sudden market energy costs. Some of the closed swimming pools never reopened (e.g. Júlia bath, Nyíregyháza), and billing chaos began for residential consumers. The legislator did not say how the annual average consumption should be calculated for the period August-December 2022 (the utility reduction 2.1v started on August 1, 2022), and what this new utility reduction means for flat-rate consumers, etc. And the rest is history, as the learned Scottish professor would say…

There is only one lasting advantage of the above reform of overhead reduction: it is the Overhead Protection Fund itself.

As an independent budget item, since the summer of 2022 it has continuously shown how much the overhead reduction will cost. This is a very good and important step towards transparency. We now know that there were HUF 2,600 billion in the fund in 2023, which was halved by 2024 (this was alluded to in the math puzzle at the beginning of this article). In addition, every month the government provides the actual expenditure compared to the plan: it was HUF 460 billion between January and March 2024 (the second part of the math puzzle).

If we assume that the expenses of the Overhead Protection Fund will remain at this level in the next three quarters, then the Ferihegy airport (approx. HUF 1,550 billion) could be purchased from this year’s total cost of overhead protection. And finally, a bit of math: how many Ferihegy airports could have been bought from the budget money spent on overhead reduction between 2022 and 2023?

Cover image source: valentin russanov via Getty Images