Activities of national tripartite body in 2004 reviewed

The national-level tripartite forum, currently the National Interest Reconciliation Council (OÉT), is a central element of the Hungarian industrial relations system. It has been operating since 1990, and despite various reorganisation efforts, it has changed very little in terms of members and agenda since the early 1990s. This article reviews the 2004 activities of the OÉT, which was re-established in 2002.

The National Interest Reconciliation Council (Országos Érdekegyeztető Tanács, OÉT), the top-level tripartite forum, is one of the most important institutions in the Hungarian industrial relations system. Its operation dates back to 1990 and, despite various reorganisation campaigns, it has had practically the same members and the same agenda since the early 1990s. The most recent reform of the national tripartite forum took place after the 2002 general elections. Then the incoming socialist-liberal coalition promised to re-establish national-level social dialogue and negotiate in good faith with the representatives of social partners regularly over the most important social and economic issues (HU0209101N).

This article reviews the activities of the OÉT during 2004. Basically, the tripartite body continued to be the central element of industrial relations system in Hungary. It held 21 plenary meetings - almost bi-weekly, including a two-day informal session - and numerous sessions of different subcommittees for experts’ consultations. The following thematic grouping of major issues is based on the minutes made by the secretariat of the tripartite body and published on the webpage of the Ministry of Employment and Labour (Foglalkoztatáspolitikai és Munkaügyi Minisztérium, FMM).

Labour market issues

At its 8 January 2004 meeting, the OÉT was consulted on the government’s draft action plan of measures to promote job creation and training.

The Council's 13 April meeting was a consultation concerning the impact of the EU Accession Treaty on the Hungarian labour market, and more specifically government measures to restrict the freedom of movement of labour to Hungary in response to similar measures introduced by certain 'old' Member States.

At this meeting, the OÉT also discussed a draft amendment of Act IV of 1991 on the promotion of employment and unemployment benefits. Trade unions demanded to increase the value of the benefit to the level of the average wage while employers insisted on maintaining the current level. Employers also argued for stricter control sand more efficient incentives to facilitate return to the labour market.

At the 23 April meeting, the government initiated consultations over the re-regulation of the early retirement system used in certain occupations. Unions rejected the proposal on the grounds that it would practically phase out 'pre-age' retirement, and this particular scheme had been the key element of a compromise that had made a pension reform possible back in 1997. Unions pointed out that according to the 1997 agreement any change in the pension system requires the consent of the OÉT. Employers made it clear that they would not support any change that would increase social security contributions. At the 25 June meeting, the OÉT again discussed the government proposal on the pre-age pension system. This time the social partners accepted the main policy line of the government, and agreed to amend the list of jobs in which this option could be used. The parties agreed that the new system would enter into force on 1 January 2007. They also agreed to set up working groups to draft the necessary legislation and negotiate over the details of the planned amendments.

On 14 May, the OÉT was consulted over the long-term strategy concerning demographic policy.

The first draft of the National Action Plan for employment (Nemzeti Foglalkoztatási Akcióterv, NAP) was discussed at the 25 June meeting. The NAP was also on the agenda of the 17 September meeting. Finally, the OÉT acknowledged that the proposals of the social partners concerning the NAP had been duly incorporated by the government. Nonetheless, trade unions argued for more jobs and highlighted the importance of job security. The social partners agreed that it is necessary to overview the implementation of NAP every six months (HU0411101F).

At its 24 November meeting, the OÉT discussed the annual report of the Steering Committee of the Labour Market Fund (Munkaerőpiaci Alap Irányítótestülete) on its activity in 2003.

Negotiating working time

On 27 February 2004, trade union confederations proposed again to negotiate the possible reduction of statutory working time to 38 hours a week (HU0307101N). This claim was repeatedly refused by the employers, and this issue has practically not surfaced since.

At the 13 August meeting, the OÉT discussed a proposal from the FMM concerning public holidays in 2005. At this meeting, unions suggested making 24 December a rest day, but employers rejected the initiative. At the 12 November meeting, the union side moved to draw up a regulation that would require all retail outlets to close on 24 December at 14.00. Both the government and the employers’ side agreed that this issue should be first discussed by the relevant sectoral social dialogue committee.

Economic policy

At its 6 February meeting, the OÉT discussed policy issues related to small and medium-sized enterprises.

The agenda of the 22 March meeting included consultation over the amendment of taxation laws required by the accession of Hungary to EU. Both unions and employers’ associations put forward proposals to reduce the tax burden on business activities in general and labour in particular.

At the 17 December meeting, OÉT discussed the government’s long-term industrial strategy proposal for the period until 2013.

On 14 May, the Hungarian accession programme to the 'euro-zone' was on the agenda. Trade unions insisted on increasing the employment rate form the current 56% to 64% and called for faster real harmonisation between Hungary and EU in terms of economic performance and living standards. They argued that levelling up wage levels is an intrinsic part of this catch-up process and called for a national programme on wage harmonisation. Employers said that the measures implemented as 'campaign actions' in view of the coming 2006 elections would make it difficult to meet the targeted goals. Therefore, they proposed a mid-term social pact to ensure the meeting of the targeted inflation-reduction and budget-cutting goals. They emphasised the need for further tax cuts, and were especially concerned about the tax levied by local governments. The government welcomed the idea of a social pact. As real economy trends had not met convergence plans, at the 29 November meeting the OÉT discussed the amendment of the convergence programme for accession to the euro-zone.

On 8 July, the OÉT discussed a study drawn up by a leading economic research institute concerning the state of the Hungarian economy, as well as the draft state budget for 2005 presented by the Ministry of Finance and plans to amend the taxation system. The Finance Minister proposed again a mid-term social pact for 2004-8. As far as 2005 is concerned, the Minister announced a planned 0.5% cut in taxes, including the flat-rate social security contribution paid by employers for each employee. This wage levy is considered especially harmful by employers’ associations representing micro, small and medium-sized enterprises. The Minister also made it clear that in 2005 a review of headcounts needed in public services and public administration will be continued in view of possible staff reductions. Unions expressed their concerns about maintaining the quality of public services. One of the employers’ associations suggested that all major political parties should be involved in any social pact-style agreement in order to ensure the long-term viability of such an agreement.

Annual wage negotiation round

On 13 September 2004, the OÉT began negotiations on wage increase and minimum wage recommendations, and on the amendments of taxation laws. for 2005. In his presentation, a representative of the government said that the proposed changes in the tax system were meant to facilitate job creation and the return to the labour market of long-term unemployed people and of those suffering from exclusion for any reason. Furthermore, he said that setting the minimum wage was the responsibility of the social partners, and once they have agreed on it the government would endorse the agreement. As an initial offer, the government proposed a 4.5% gross wage increase for the competitive sector of the economy, taking into account that: the economy would grow by 3.5%-4%; the reduction of tax burden would result in a 2% net wage gain for employees in general; and inflation would be 4.5% in 2005. In sum, the government proposed an average wage increase in line with inflation plus a 2% average real wage growth due to the tax reduction.

The unions rejected the proposal and demanded a 4.0%-4.5% real wage increase, which meant a 6.0%-6.5% gross wage increase. As far as the tax cut is concerned, unions’ position was that the reduction should first of all help those whose average income is below and around the national average. Unions also demanded to increase the value of tax-free fringe benefits and to make union membership fees deductible from personal income tax. Unions claimed that the minimum wage increase should be higher than the average wage raise, and that the minimum wage should amount to around 60% of average wages.

The employers’ side rejected the idea that the increase of real wages should be in line with GDP growth. They also expressed concern that the tax burden reduction is not sufficient to maintain the competitiveness of the Hungarian economy. In the absence of a more substantial tax reduction, undertakings are unable to raise wages as much as unions wish. The employer side was especially concerned that the government proposed a smaller reduction of the flat-rate social security contribution than was agreed by the OÉT in 2004. Finally, employers supported the government proposal and made it clear that they would agree only on a 4.5% gross wage increase and a 2% real wage increase. As far as the minimum wage is concerned, they proposed to increase it by HUF 1,500 only, to HUF 55,500 per month.

On 24 September, the OÉT continued its discussion on wage recommendations for 2005. First, a representative of the National Bank of Hungary (Magyar Nemzeti Bank, MNB) gave an overview of the economic situation and forecasts concerning 2005, including the policy of MNB. In the discussion, unions put forward a package of proposals to increase the value of tax-free fringe benefits. They also proposed to give tax-free status to unions’ economic undertakings. The employers’ major concern was related to the envisaged changes in the taxation system. They urged a more drastic cut in the flat-rate social security contribution. The government was open to making some concessions to unions as far as tax-free fringe benefits were concerned and on some issues related to tax payments raised by the employers. At this meeting, the OÉT was consulted concerning the guidelines for the 2005 draft budget. As far as the wage recommendations and minimum wage increases were concerned, the government slightly shifted its position. First, it raised the GDP growth forecast to 4.5%, and in parallel with this it signalled that it could accept a 3% real wage increase and an agreement by the social partners on a monthly minimum wage of HUF 57,000-HUF 58,000.

At its 12 November meeting, the OÉT reached a consensus on wage recommendations, the minimum wage and draft legislation concerning tax system rules for 2005 (HU0501102N).

European-level regulation

On 27 February, the OÉT was consulted concerning a draft report on the implementation of the European Social Charter and a draft law transposing the EU Regulation on the European Company Statute and the accompanying Directive (2001/86/EC) on employee involvement (EU0206202F).

At the 29 November meeting, the OÉT discussed the Hungarian position on the ongoing negotiations (EU0412206F) over the European Commission's proposed amendment of the EU Directive concerning certain aspects of the organisation of working time (2003/88/EC) (EU0410205F). In the national debate, the trade union side did not support the proposed amendment as it increases flexibility and reduces the rights of employees. Employers suggested continuing the discussion on this issue in the future.

Other draft laws

On 22 March, consultations were held at the OÉT over a bill on the legislative procedure. The trade union side rejected the draft law, arguing that it neglected the role of interest representation organisations. Although the government did not accept this argument, it was open to making some changes to the language of the draft law.

At the 24 November meeting of the OÉT, an amendment of the Labour Code transposing the provisions of the EU Directive (2002/14/EC) on national information and consultation rules (EU0204207F) was on the agenda. The unions supported the planned amendment, saying that at earlier discussions the government had already considered their specific proposals. The employers’ side, however, expressed concern about certain proposals, and it especially opposed provisions giving trade unions information rights in the absence of a works council, arguing that this would lengthen the consultation period. Employers also claimed that the definition of business secrecy is not precise enough and proposed requesting a legal statement from the Ombudsman in charge of data protection.

Education system and lifelong learning

The government’s policy papers on a lifelong learning programme were discussed by the OÉT on 23 April.

At the 14 May meeting, a draft law on higher education was on the agenda. Among many proposals, the unions welcomed the introduction of an element of pay for teachers rewarding their commitment. On the other hand, they insisted that higher education teachers’ public service employee status should be maintained. Employers’ main concern was to ensure flexibility in the education system in general, and in higher education’s quick and flexible response to the exigencies of business undertakings in particular.

At the OÉT's 24 November meeting, the focus of consultations was on a government proposal to improve the vocational training system. The social partners agreed that there was an urgent need to improve vocational training and ensure a better connection between training institutions and economic actors. The partners underlined the importance of proper social dialogue concerning strategic and practical issues of vocational training, especially at sectoral level. The unions also stressed the importance of having better linkages between vocational training institutions and undertakings, and to improve the conditions of a 'dual-channel' training system.

Issues related to the industrial relations system

At a two-day meeting on 4 and 5 March at a holiday resort, the social partners reviewed the functioning of the OÉT itself. The partners agreed that it was necessary to strengthen consultation over key strategic economic issues, such as economic development plans, employment, budgets, the tax system, training, and wage policy. The partners also agreed on the necessity for new legislation concerning the rules of representativeness, and representation of the interests of economic actors.

At the 13 August meeting, the OÉT discussed the state of sectoral social dialogue committees (Ágazati Párbeszéd Bizottságok, ÁPBs) and proposed setting up a Centre for Sectoral Social Dialogue (Ágazati Párbeszéd Központ, ÁPK). The ÁPK is to work within the framework of the National Employment Foundation (Országos Foglalkoztatási Közalapítvány, OFA). With some amendments, the OÉT also endorsed an agreement reached by social dialogue committees on their establishment, functioning and representativeness rules. The OÉT would annually review the functioning of ÁPBs as well as state subsidies for their activities. The OÉT demanded that ÁPBs should be regulated by law as soon as possible, and that the draft law on this issue should be negotiated first by the OÉT. Moreover, in the future any regulation concerning ÁPBs should be made together with the social partners within the framework of the OÉT.

On 17 September, the OÉT discussed the report of the Labour Mediation and Arbitration Service (Munkaügyi Közvetítő és Döntőbirói Szolgálat, MKDSZ) on the period between September 2003 and September 2004, and agreed to hold a plenary meeting on the future role of MKDSZ in the near future. Furthermore, the social partners confirmed their support for the use of MKDSZ mediators and arbitrators.

At the 12 November meeting, trade unions raised the issue of the shrinking coverage of collective agreements. The coverage of collective agreements shrank from 41.1% of the workforce in 2003 to 39.5% in 2004. Unions said that the major cause is employers scrapping agreements without due reason, and requested a suspension of state subsidies to such companies. Employers, in general, expressed their support for 'socially regulated' working conditions and for collective agreements. Nonetheless, they rejected the unions’ initiative.

Commentary

The above overview of the agenda of the OÉT in 2004 amply shows how wide is the scope of issues dealt with by the tripartite forum. It discussed practically all major issues related to labour market development and regulation, including the pension system and the development of education. As far as economic policy issues are concerned, the most important function of the OÉT is to set the minimum wage and make a recommendation on wage increase for the coming year. In this bargaining process, the government is an active partner, especially in encouraging social partners to agree on the minimum wage increase and recommended wage growth by giving concessions in the tax system reform and in certain budget lines. In 2004, the annual wage bargaining round took up about a third of the working time of the OÉT.

Working time reduction continued to be a major issue for unions, and they put this issue on the agenda several times. However, their efforts proved to be unsuccessful. In the context of some recent reversals in working time reduction across Europe, both the employers’ side and the government avoided making any concession in this area.

That the OÉT dealt with so many issues partly explains why there was not any major attempt to conclude a comprehensive social pact in Hungary. In other words, the OÉT continuously reviewed all major issues that could have been the topics of a social pact. Small compromises spread across many issues seem to be a workable solution in the context of a highly divided and politicised Hungarian industrial relations system. (András Tóth and László Neumann, Institute of Political Science, Hungarian Academy of Sciences)

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