Trade unions clash with new government over tough economic programme

Despite the newly re-elected government’s support for social dialogue, its proposed new austere economic measures have met with a hostile response from the trade union side. The new economic measures, which are aimed at eliminating the substantial budget deficit, include proposals to increase value-added tax on consumer goods and wage levies, in addition to a programme to reform key sectors of the public administration and its services.

Background

A key aspect of the April 2006 general elections for many of the trade unions was whether the coalition government of the Hungarian Socialist Party (Magyar Szocialista Párt, MSZP) and the Alliance of Free Democrats (Szabad Demokraták Szövetsége, SZDSZ) – which are amenable to social dialogue – would remain in office, or whether the Alliance of Young Democrats–Hungarian Civic Party (Fiatal Demokraták Szövetsége–Magyar Polgári Szövetség, FIDESZ-MPSZ) would return to office. The latter party had shown little interest in social dialogue, especially with the trade unions, when it led the right-wing government coalition between 1998 and 2002.

As a result, the National Association of Hungarian Trade Unions (Magyar Szakszervezetek Országos Szövetsége, MSZOSZ), one of the major trade union confederations, signed an electoral alliance with the MSZP, while most of the other unions also tried to maintain favourable relations with the ruling coalition in the months of the electoral campaign.

Trade union reaction to austerity measures

Following its electoral victory, the re-elected MSZP–SZDSZ government coalition made it clear that stringent measures would have to be implemented if the substantial state budget deficit was to be eliminated. The government also announced that it would embark on an ambitious programme to reform key sectors of the public administration and its services (HU0607059I).

In response to these new measures, four trade union confederations – MSZOSZ, the Trade Unions’ Cooperation Forum (Szakszervezetek Együttmuködési Fóruma, SZEF), the Confederation of Unions of Professionals (Értelmiségi Szakszervezeti Tömörülés, ÉSZT) and the Alliance of Autonomous Trade Unions (Autonóm Szakszervezetek Szövetsége, ASZSZ) – held a joint demonstration in May 2006 to address the nature of the government reforms. However, only about a thousand union activists participated in the demonstration.

The four confederations were responding to some of the leaked reform initiatives of the government. In particular, they called for the continuation of the progressive personal income tax system, instead of the introduction of the flat rate tax system preferred by the junior coalition party, SZDSZ. In general, the unions accepted that reforms were necessary; however, they wanted to be consulted about such reforms through the established mechanism of tripartite consultation.

In addition, the two smaller union confederations – the Democratic League of Independent Trade Unions (Független Szakszervezetek Demokratikus Ligája, LIGA) and the National Federation of Workers’ Councils (Munkástanácsok Országos Szövetsége, MOSZ) – staged a separate demonstration involving a few hundred participants, in protest against breaches of union rights at workplaces.

On 25 April 2006, President of MSZOSZ, Tamás Wittich, made it clear that, although the union accepted the need for new measures, it would reject any initiative challenging the achievements of the previous administration, such as: minimum wages free from personal income tax, a progressive personal income tax system, tax-free workplace-related fringe benefits and a steady increase of the real value of wages and pensions. Other unions, like ASZSZ, more openly rejected the reforms and also objected to the privatisation of major public transport companies.

VAT and income tax

Following the publication of its economic package, the government submitted its proposals to the National Interest Reconciliation Council (Országos Érdekegyezteto Tanács, OÉT), Hungary’s institution for macro-level tripartite consultation. The most important demand expressed by the unions through this forum was to revoke the proposed measures to standardise value-added tax (VAT) by increasing it from 15% to 20% on consumer goods such as food, public transport, electricity and gas.

The unions, along with a number of experts, argued that the previous government decision to reduce the VAT rate from 25% to 20% was unnecessary and largely responsible for the budget imbalances. They proposed a VAT increase on consumer items considered ‘luxury goods’ from 20% to 23% and on other consumer goods from 15% to 17%. This increase, they argued, would be more beneficial for poor people and for employees on low wages, whose consumption primarily consists of everyday consumer goods.

Furthermore, this proposal would result in higher revenues for the state budget and would thus allow for a reduction in income tax. At the plenary session of OÉT, the government representative seemed to accept the trade unions’ proposal; however, in the end the government rejected any change in the taxation package. Reportedly, the minor coalition partner blocked all moves aimed at maintaining the two-tier VAT system, as its programme envisaged a transition to a flat rate tax system.

In response to the government’s decision, the unions rejected the package as a whole. ASZSZ insisted that it would oppose the package, as it felt it placed a greater burden on employees than on employers. MSZOSZ adopted a more moderate position by requesting changes to certain elements of the package. Meanwhile, LIGA called for a public rally against the government, a move strongly supported by MOSZ and ASZSZ. Eventually, all of the national trade union confederations agreed to take part in the protest initiative.

Joint demonstration of union confederations

On 7 July 2006, six trade union confederations held a joint demonstration, protesting against the proposed new economic measures of the re-elected government. Despite the fact that about 30 non-governmental organisations (NGOs) and small left-wing political movements also joined the demonstration, only a few thousand people gathered to protest against the measures. According to media estimations, between 3,000 and 6,000 people were present, despite union forecasts of tens of thousands of people.

There were several reasons for the low levels of participation. Reportedly, it was difficult for left-wing unions to mobilise their members against the MSZP-led government, although the union leaders could not avoid formally joining the demonstration. Moreover, the government also tried to downplay the importance of the demonstration and held separate meetings with key union leaders. A few days before the demonstration, it signed an agreement with the Trade Union of Hungarian Civil Servants and Public Service Employees (Magyar Köztisztviselok és Közalkalmazottak Szakszervezete, MKKSZ) on the procedures and compensation schemes for redundancies in the state administration. It also emerged that Mr Wittich was to leave MSZOSZ to take up a position as head of a government office; he therefore refused to criticise the government openly. The unions also seemed to limit their organisation efforts, and did not implement a major mobilisation campaign.

At the demonstration, the six union confederations petitioned against the government, claiming that the OÉT consultation on the proposed measures was purely perfunctory and that the government did not really intend to reach an agreement. They warned that an increase in income tax would further increase the level of undeclared work. The union confederations also criticised the government measures for their streamlining of public administration, and expressed their concerns about the possible outcomes regarding the performance and quality of the public sector. Finally, they called on the members of parliament to veto the proposed austerity package.

Nonetheless, it was clear that the union confederations were somewhat divided about which government measures they were most critical of and about apportioning blame for the crisis.

Commenting on the demonstration, Hungarian Prime Minister, Ferenc Gyurcsány, declared that it was the government’s duty to consult with the organisations representing particular interests, but that it was committed to acting for the benefit of the whole nation. He nevertheless expressed his hopes that consultation would continue with the social partners through the tripartite social dialogue mechanism and not through street demonstrations.

Commentary

The unions are in a divided position following the recent government elections. On the one hand, the electoral victory of MSZP will ensure the continuity of tripartite social dialogue at national and sectoral level as the government maintains its support for the social partners. On the other hand, the austerity measures and the planned large-scale reforms of public services have sparked criticism among the trade unions and are likely to be the source of several conflicts in the future.

However, the unions have failed to devise a viable and united solution to the new challenges. In the context of the highly divided Hungarian union movement, it is virtually impossible to develop a common strategy, except for a few general demands.

A further problem is the weak mobilisation capacity of the unions. Following the demonstration, most observers commented that the confederations seemed unable to organise a proper mass demonstration to highlight their demands. At the negotiation table, the achievement of the unions seems to be limited to institutional support for social dialogue.

Meanwhile, the government reshuffle has not curbed the authority of the Ministry of Social Affairs and Labour (Szociális és Munkaügyi Minisztérium, SZMM), despite earlier proposals from the junior coalition to merge it with the Ministry of Economy. Also, the new Minister of Social Affairs and Labour, Péter Kiss, is known to be one of the key figures of the left-wing MSZP party and considers that social dialogue is an important mechanism.

While the national trade union confederations have been unable to change the government’s position so far, it is likely that the planned reform measures in public health, education and transport will meet more hostile union responses at sectoral and workplace levels. The unions in these sectors are among the most important trade unions in the Hungarian union movement. Clearly, forthcoming events will have a major impact both on the development of the Hungarian welfare state and on the long-term viability of the trade union movement.

Further information

See details of new social pact on Hungary’s economic competitiveness, published by 16 business and employer organisations after the general elections in April 2006 (HU0605019I).

András Tóth and László Neumann, Institute of Political Science, Hungarian Academy of Sciences

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