Hungary's Magyar pushes back on pension and tax reforms at EU talks

Reforms on pensions and taxation have emerged as the main sticking points between Budapest and Brussels in technical negotiations to unlock billions of euros in EU funding for Hungary, Euronews has learned.

According to several European Commission officials, Hungary’s new prime minister, Péter Magyar, is resisting both reforms, arguing they would put additional pressure on the country’s budget.

Magyar and his cabinet have been in talks with the European Commission to unlock a total of €17 billion in EU funds frozen under the previous administration of Viktor Orbán over rule-of-law and corruption concerns.

Hungary could lose €10.4 billion in recovery funding if it fails to meet the August 31 deadline required to access the money. Commission officials say they could simplify some milestones but they have ruled out any extension of the deadline.

Officials within Magyar’s government admit that there may not be enough time to carry out sweeping sectoral reforms before the end-of-August deadline for unlocking post-COVID Recovery and Resilience Facility funds.

The issue is politically sensitive for Magyar: pension reform was a central pledge of his electoral campaign, with his Tisza party having promised to raise minimum and below-average pensions.

Hungary’s approved recovery plan includes measures to make the pension system more sustainable and equitable, alongside efforts to simplify the country’s tax code.

Magyar’s team has since told Brussels that Hungary remains committed to pension reform in principle, but that the country’s weak fiscal position and the limited time available make implementation before the deadline practically impossible.

Last weekend, Magyar wrote to Commission President Ursula von der Leyen setting out his red lines ahead of the negotiations. The contents of the letter have not been disclosed.

On taxation, Magyar has publicly ruled out removing windfall taxes imposed on the energy and financial sectors.

“The European Commission’s expectation, for example, is that the government should gradually phase out some of the special taxes. This is obviously also in the interest of the Hungarian economy, but in the current budgetary situation, the Hungarian government certainly cannot undertake this,” he said last week.

It remains unclear how the Commission will respond. Hungary could, in principle, substitute the contested reforms with alternative commitments.

A large EU delegation in Budapest

More than 20 European Commission experts arrived in Budapest on Monday for talks on how to unfreeze the funds, with the visit scheduled to conclude on Friday.

A Commission official, speaking on condition of anonymity given the sensitivity of the matter, said the size of the delegation reflects von der Leyen’s personal commitment. The Hungarian negotiation team, the official said, is “more than constructive.”

Discussions have focused on the Recovery Funds, with experts assessing what is realistically achievable before the end of August.

Brussels has also advised Hungarian negotiators to concentrate on securing the non-repayable grant portion of the funds — worth €6.5 billion — and to forgo the loan component, valued at €3.9 billion, arguing that additional borrowing would worsen Hungary’s already fragile fiscal position.

A political agreement expected in Brussels next week

Magyar is expected to travel to Brussels next week to sign a political agreement with von der Leyen on the path towards releasing the frozen funds. No date has yet been confirmed for the meeting.

Sources inside the Commission indicate that the “political agreement,” is primarily a symbolic step as Hungary needs to fulfill all the criteria to access the recovery funds.

They highlighted the complexity of the process, noting that unlocking the recovery funds requires Hungary to meet a set of criteria, including 27 so-called “super milestones” and more than 368 individual milestones.

According to one official, the political agreement would see von der Leyen and Magyar declare publicly that a new chapter in EU-Hungary relations is beginning.

They are expected to agree on a timeline for the necessary steps and to reaffirm Hungary’s commitment to joining the European Public Prosecutor’s Office and the eurozone.

Erasmus+ dispute may be near resolution

One concrete outcome could be a joint statement on resolving Hungary’s long-running Erasmus+ dispute.

In 2022, 21 Hungarian universities — restructured as public interest asset management foundations, known by their Hungarian acronym KEKVA — were suspended from EU funding over corruption concerns linked to their governance boards.

The move significantly reduced opportunities for Hungarian students to participate in exchange programmes.

The issue has increasingly frustrated officials in Brussels, as it disproportionately impacts young, pro-European Hungarians, many of whom supported efforts to unseat Viktor Orbán.

A resolution would require Hungary to address governance concerns around the KEKVA foundations, though the Commission has indicated it is not demanding their abolition outright. Budapest has yet to decide how to proceed.

Another major sticking point is Hungary’s continued non-compliance with a prior ruling by the European Court of Justice on the treatment of asylum seekers, which has resulted in a €1 million-per-day fine.

Hungary is currently subject to this penalty, and Péter Magyar has signaled that he is seeking a way to resolve the issue.

Read the full article here