The International Journal
of Not-for-Profit Law
Volume 3, Issue 4, March 2001
By Dr. Posch Gabor
Before the changes in the political system in Hungary in 1990., the humanitarian activities and the public and community tasks which are the distinctive features of a modern society were almost exclusively within the competence of the state through a centralized taking care off everything and everybody. In accordance with this external state role, the central new division has grown rapidly.
The arising social and economical changes in Hungary have created a surrounding in which it has become obvious that conditions for a three sector model (government sector, non-profit sector, enterprises) functioning need to be established. Also, it has become obvious that the public tasks which were before within the competence of the state are not capable off being executed completely or partly by the state authorities.
Changes in the role of the state regarding the public tasks required the establishment of non-profit organizations which would serve the public aims and through which the civil society would be able to gain a bigger role on a longer run regarding the satisfaction of its own public needs, the independent supply of some part of those public tasks which are exceeding and overloading the budget capacity of a state, in other words cooperation in the supply of the state tasks.
The 1993 changes in the Civil Code served the purpose of defining the basic institutions and definite organization types of a non-profit sector, the most fundamental functioning and operating principles of the institutions and in this way laid a foundation for the regulation of the non-profit sector. This regulating process was supplemented with an act on organizations of a public benefit, which was enacted by the Hungarian Parliament in 1997.
The law on public benefit organizations applies to the social organizations, foundations, public benefit associations and in reference public assemblies regardless whether their role is direct or indirect.
Public benefit organizations are usually functioning in such areas where the supplies of the tasks is possible through the government institutions as well. The government’s interest in financing the public benefit organizations from the budget can be explained by the fact that in the supplies of public benefits the social power sources, meaning the voluntary work too, can be involved directly to a great extent, and furthermore the prices of services rendered by these organizations are more flexible. The evident reason for this is the non-profit character of these organizations and their beneficial and thrifty operation.
The redistribution role of the state is done through the state budget system or the state budget subsystems. The state budget is a system composed of the sum of public monetary resources, the central government, the separated state monetary funds, the local governments and the financing operation system together with the state insurance tasks. The state’s task providing may occur within the state’s institution system or through the so-called budget transfers, through the organizations outside the state budget.
The central point of the state budget is composed of the central government’s budget. The public benefit organizations can benefit form these delegated central budget sources in several ways, so the financing of some organizations figures as a preliminary calculation in the budget (organizational type of aid), contrary to some sources which are reachable by contests, that is, for the performance of certain specified tasks the law gives the possibility to the organizations which are outside the state budget to use normative state contribution (support for, in the first place, specified tasks, but also of a mixed nature).
The following case study shows the direct budget financing of the public benefit organizations, with a special reference that this is the most important way of financing the civil organizations which take over the state’s role in performing the public tasks.
The support of the public benefit organizations which are cited in the Budget Act always appear in the preliminary estimates in that kind of budget section which is competent for the field of activity of the specified benefit organization. These organizations gain the authorization for the use of the preliminary estimates upon the decision of the parliament on this matter, and they are authorized pursuant to their external and internal regulations.
The access to the support and the way of reporting in the practice can be quite different than in some of the social organizations and foundations. The access can be realized differently depending whether it is within the framework of program financing or outside it. Financial resources can be provided automatically or based on the agreement between the section and the public benefit organization.
- In the case of program financing the public benefit organization has to prepare a program review, which has to be authorized by the head of the section or his representative. Upon the program review gains authorization, the Treasury pays the support.
- In cases which fall outside the program financing different methods are used. Those organizations which are mentioned in the section on Government’s presidency have to submit a time schedule plan for the usage of the preliminary estimates to the Treasury, the Ministry of Education signs a contract for the support, in which contract the parties – in harmony with the accepted tasks – have to determine the payment schedule and the accounting conditions at the Ministry of Social and Family Matters about the organization’s task, and depending on its activity they automatically transfer the amount or sing the contract, upon which the payment is done.
The supports which are shown as different preliminary estimates in the budget for the public benefit organizations are divided as follows depending on the type of the organization since the enactment of the law on public benefit organizations.
In Millions of Ft.
| 1997 | 1998 | 1999 | 2000 | |
| Foundations | 3119,8 | 3.172,0 | 2.529,4 | 3.220,1 |
| Social Foundations | 7.145,0 | 10.729,1 | 5.260,5 | 10,704,4 |
| Public Benefit Associations | 300,0 | 418,0 | _ | 1.306,0 |
| Social organizations | 1125,1 | 1277,8 | 8.055,7 | 9.955,8 |
| Total : | 11.689,9 | 15.596,9 | 15.845,6 | 25.186,3 |
Remark: In September, 2000. The exchange rate between USD/HUF was 1:203 .
It can be seen from the above mentioned preliminary estimates that the significance of the public task providing through the public benefit organizations, the amount of public financial resources set aside is growing every year. The differentiation between some types of organizations is the result of the task division.
The other way to access the budget resources is to use the possibilities of tenders. These types of supports have been contained in the 1997 budget as preliminary estimates in the amount of 3500 million forints.
The tender system is discordant respective of various sections and preliminary estimates and this is determined by the owner of the preliminary estimate which decision has to be within the boundaries determined by the law. It is a common distinctive that the delivery of these financial resources definitely occurs within the boundaries of the contract law, where the parties have the right of disposal about the conditions of settlement on the support.
An important element of the budget financing system is that the state budget law gives the possibility to the public benefit organizations that for the providing of the determined tasks which are in the area of responsibility of the affected organ, money assets can be delivered to the extent defined in the law. It is necessary to observe that these amounts played an insignificant role during the past few years, because they amounted 5-20 million forints per year.
The Hungarian state budget system does not make the difference concerning the so-called normative supports regardless of the fact who is the keeper of the organization which is performing the state tasks (for example, public education, social support). According to this, for the performance of these tasks the public benefit organizations are financed from the central budget as well as from the local governments. These supports are supplemented with the above mentioned sources form the tender system. (The local governments are giving each year increasing non-normative support to the public benefit organizations which are performing the state and local tasks for their more successful performance of these tasks).
All this can be seen in the forming of the public benefit organizations income.
The Non-Profit Sector According to its Income Sources in 1994-1995
| Income sources | Income | |||
| Sum, in millions of Ft | Distribution, % | |||
| 1994 | 1995 | 1994 | 1995 | |
| Normative budget support | 3.617,6 | 3.707,8 | 2,5 | 1,9 |
| Non-normative budget support | 19.971,0 | 24.722,7 | 13,9 | 12,6 |
| Support gained from the central base | – | 6.003,3 | – | 3,1 |
| Normative support from the local governments | 433,2 | 590,7 | 0,3 | 0,3 |
| Non-normative support from the local governments | 5.738,2 | 5,889,1 | 4,0 | 3,0 |
| Total support from the state | 29,760,0 | 40,913,6 | 20,6 | 20,9 |
| Total private support | 30,587,2 | 43,414,5 | 21,2 | 22,2 |
| Total income from the basic activities | 33,883,8 | 55,284,2 | 23,5 | 28,3 |
| Total income from the managing activities | 43,151,0 | 53,8151 | 29,9 | 27,5 |
| Total income | 144.131,9 | 195.627,3 | 100,0 | 100,0 |
The Non-Profit Sector According to its Income Sources in 1997-1998
| Income | ||||
| Income sources | Sum, in millions of Ft | Distribution, % | ||
| 1997 | 1998 | 1997 | 1998 | |
| Normative budget support | 8.435,7 | 11.559,3 | 3,0 | 3,2 |
| Non-normative budget support | 25.667,8 | 32.394,1 | 9,0 | 9,0 |
| 1% of the personal income tax | 1.770,1 | 2.362,1 | 0,6 | 0,7 |
| Support gained from the central base | 14.153,5 | 12.221,3 | 5,0 | 3,4 |
| Normative support from the local governments | 472,3 | 1.066,4 | 0,2 | 0,3 |
| Non-normative support from the local governments | 12,829,9 | 15.047, | 4,5 | 4,2 |
| Support from the budget institutions | .. | 4.857,6 | .. | 1,4 |
| Total support from the state | 63.329,3 | 79.507,8 | 22,3 | 22,2 |
| Support from business organizations | 19.680,2 | 20.683,4 | 6,9 | 5,9 |
| Support from population | 6.568,8 | 7.272,6 | 2,3 | 2,0 |
| Foreign support | 16.299,5 | 20.569,3 | 5,7 | 5,7 |
| Support from non-profit organizations | 9.393,8 | 10.857,1 | 3,3 | 3,0 |
| Total private support | 51.942,3 | 59.382,4 | 18,2 | 16,6 |
| Dues income from private persons | 8.238,6 | 9.928,6 | 2,9 | 2,8 |
| Dues income from legal persons | 13.808,3 | 17.110,8 | 4,9 | 4,8 |
| Basic activities price and dues income | 64.091,0 | 91.565,7 | 22,5 | 25,3 |
| Basic activities application income | 9.352,2 | 15.776,2 | 3,3 | 4,4 |
| Total income from the basic activities | 95.490,1 | 134.381,3 | 33,6 | 37,3 |
| Finance operations income | 23.043,9 | 25.162,2 | 8,1 | 7,0 |
| Managing income | 46.878,2 | 50.365,7 | 16,5 | 14,1 |
| Total income from managing activities | 69.922,1 | 75.527,9 | 24,6 | 21,1 |
| Obtainment of credits and loans | 2.099,3 | 8.567,3 | 0,7 | 2,4 |
| Other income | 1.579,1 | 1.322,8 | 0,6 | 0,4 |
| Total income | 284.362,2 | 358.689,5 | 100,0 | 100,0 |
Source: KSH non-profit organizations in Hungary in 1995, 1998 year
In consideration of the fact that in the Central Bureau of Statistics’ assessment both the voluntary mutual insurance banks and the interest representations are present, and that the assessment cannot include the allowance system which is in connection to the individual support, further, the monetary assets which are distributed through the state foundations are shown in the individual support (accumulation), it is presumable that 25-30 % of the income of the organizations which are established for performing the public tasks originates form a state source. This is quite below to the Western-European scale where this proportion is 30-70 %.
The representative piece of proportion in the state support income structure is significantly differentiated certain, depending on the organizational form of the institution which are belonging to the sector. These proportions are more or less presenting the role of certain types of organizations in the performing of the public tasks.
The Division of the Non-Governmental Organizations’ Income According to the Income Sources and to the Legal Form of the Organizations in 1998 (%)
| Organizational form | State support | Private support | Managing and other income | Basic activities income | Total |
| Public foundation | 81 | 8 | 9 | 2 | 100 |
| Non-profit organizations’ institution | 54 | 14 | 5 | 27 | 100 |
| Public benefit association | 24 | 7 | 60 | 9 | 100 |
| Foundation | 16 | 44 | 30 | 10 | 100 |
| Association | 19 | 16 | 30 | 35 | 100 |
| Trade union | 1 | 12 | 37 | 50 | 100 |
| Professional, employers’ organization | 4 | 2 | 43 | 51 | 100 |
| Public assembly | 10 | 2 | 13 | 75 | 100 |
| Insurance aid fund | 0 | 10 | 5 | 85 | 100 |
The Division of the Non-Governmental Organizations’ Income According to the Income Sources and to the Legal Form of the Organizations in 1998(%)
| Organizational form | State | Private | Base | Managing | Other | Total |
| support | activities income | |||||
| Foundation | 22,8 | 38,6 | 14,8 | 21,7 | 2,1 | 100,0 |
| Public foundation | 40,7 | 9,6 | 40,5 | 9,0 | 0,2 | 100,0 |
| Association | 22,7 | 14,9 | 33,5 | 25,7 | 3,2 | 100,0 |
| Public assembly | 19,1 | 3,0 | 69,4 | 7,4 | 1,1 | 100,0 |
| Trade union | 2,5 | 11,1 | 56,9 | 29,3 | 0,2 | 100,0 |
| Professional, employers’ organization | 6,9 | 6,7 | 60,6 | 25,0 | 0,8 | 100,0 |
| Public benefit association | 17,5 | 1,2 | 52,7 | 22,3 | 6,3 | 100,0 |
| Non-profit organizations’ institution | 62,1 | 9,2 | 24,5 | 4,1 | 0,1 | 100,0 |
| Total: | 22,2 | 16,6 | 37,3 | 21,1 | 2,8 | 100,0 |
Source: KSH Non-profit organizations in Hungary in 1995, 1998 years
The proportion of the state support between the income of the public benefit organizations which belong to various activity groups is different and it shows that in the case of traditional organizations which are based on the historical legacy, the dependence on the budget support is much lower than in other new activity groups (for example, legal protection, international agreements).
The Proportion of the State Support Between the Income of the Non-Profit Organizations which Belong to Various Activity Groups (%)
| 1995 | 1998 | |
| Activity group | Proportion of state support | |
| Legal protection | 75,2 | 69,8 |
| International relations | 59,6 | 50,3 |
| Civil protection | 54,3 | 53,2 |
| Social supply | 46,3 | 46,4 |
| Culture | 36,4 | 19,6 |
| Public safety protection | 34,2 | 36,0 |
| Health care | 27,2 | 29,1 |
| Education | 26,3 | 31,7 |
| Politics | 14,2 | 14,9 |
| Religion | 8,3 | 12,5 |
Source: KSH Non-profit organizations in Hungary in 1995, 1998 years
Everything what was said until now on the budget support of the public benefit organizations shows that the support
system of the public benefit organizations is very complex and contradictory, their role in providing the public tasks and therefore their relationship towards the state organs is not regulated appropriately. The practice in the distribution and the financial accounting is quite diverse, but is not satisfactory. The main reason for this is apparently that the distribution of the tasks between various organizations goes back only for a short time, i.e. for a period of 10 years. The common work and responsibility of the state and the public benefit organizations is to form the future steps, possibilities and conditions based on the experience.