Education in Hungary 2000

Chapter 3 - Financing Public Education

The basic principles of financing public education did not change considerably throughout the 1990s (details below). The 1996 Public Education Act and its 1999 Amendments, however, meant major improvements to the system - they meant stronger state guarantees and the independence of financial support - and introduced a more sophisticated system of additional grants and earmarked funds for high professional and political priorities in education.

3.1 Expenditures in Public Education

Budget expenditure on education in general and on public education in particular in the percentage of the GDP increased in the early nineties, then slowly began to diminish. A sudden fall began in the mid-nineties: the percentage decreased from 4.98% in 1994 to 3.64% in 1998. This trend stopped in 1999: expenditure on public education that year was the same as in the previous year, 3.64% (Fig. 3.1). Total spending on public education is shown only by an indicator that includes expenditures by households (people), corporations and the non-profit sector, which is based on estimates for lack of available data. Taking all that into consideration, Hungary spent 5.27% of its Gross Domestic Product on education in 1998.

 

Figure 3.1    Budget expenditure on education and public education in percentage of GDP (1990-1999)
Note: Expenditure on public education includes pre-school, primary and secondary education, expenditure on further education includes higher and other education.
Source: Data of the Ministry of Education (forecast for 1999)

 

Figure 3.2    Expenditure on public education in percentage of GDP in OECD countries, 1998
Source: Education at a Glance, 2000

The data for 1998 show that Hungary spent less on public education than the OECD average. Data including post-secondary education and non-budgetary (private) spending shows that among OECD countries only Japan and the Netherlands spent a smaller proportion of its domestic production on public education than Hungary (Fig. 3.2).

Budget spending on education per student in percentage of the GDP dropped significantly in Hungary in the late nineties and this trend did not reverse until 1999. In spite of the decrease, this indicator (budget spending on education per student in percentage of the GDP) was near the OECD average, except for secondary education, where it was below the OECD average
(Table 3.1).

The changes are explained in part by economic growth, in part by an increased spending on public education. In the first ‘crisis period’ between 1990 and 1994 there was a dramatic fall in the GDP, whereas expenditures on public education (up to 1992) increased significantly and then temporarily stabilised at a relatively high percentage of Gross Domestic Product (up to 1994). At that point Hungary was among the countries spending the highest percentage of GDP on public education. From 1993 on, public education norms were frozen, indicating budgetary limits on the one hand, and the fact that the educational administration was unwilling to finance further expansion of capacities on the other, while the number of students (especially in primary schools) kept decreasing. A growing financial involvement of local governments practically compensated for the real value loss of support from the state budget (Fig. 3.3 and Table 3.2).

 

Table 3.1    Budget spending on education per student in percentage of per capita GDP in certain OECD countries on various levels of education, 1997

Country	Nursery school	Primary	Lower secondary	Higher secondary
Austria	21	27	31	41
Belgium (Flemish parts)*	12	16	nd	nd
Canada	17	nd	nd	nd
Czech Republic	19	15	25	31
Finland	31	23	23	27
France	16	17	29	34
Germany*	19	16	21	43
Hungary*	21	21	20	23
Ireland	12	12	nd	nd
Greece*	nd	17	nd	nd
Italy*	nd	nd	nd	nd
Netherlands	15	15	23	22
Switzerland*	9	24	29	42
Spain	16	20	21	33
Sweden	14	27	27	27
United Kingdom*	26	16	nd	nd
Australia	nd	17	23	29
Average of OECD countries	17	19	24	30

NB: The individual school levels are defined differently in various countries
* Budget expenditure only or education financed exclusively by budget expenditure
 
Source: Education at a Glance, 2000

 

Figure 3.3    The increase of expenditures in public education and consumer price index, 1991-1999 (previous year = 100%)

Source: Ministry of Education, state budget reports

 

Table 3.2    The state budget and public education expenditures of local governments, 1991 - 1999 (in HUF)

Expenditure	1991	1992	1993	1994	1995	1996	1997	1998	1999*
Total public education expenditures of the state budget1	126	157	186	217	241	268	327	378	428
The proportion of the above appearing at the level of local governments	122	151	177	211	235	261	320	366	413
The proportion of the above as disposable normative support	71	84	95	93	94	135	163	180	211
Disposable normative support as percentage of total public education expenditure of local governments (%)	58.5	55.8	53.6	44.1	40.0	51.7	50.9	49.2	51.2
Earmarked and centralised support2	-	0.5	0.5	0.5	1.3	3.5**	14.7	19.1	19.8
Earmarked and centralised support as percentage of total public education expenditure of local governments (%)	0.0	0.4	0.3	0.2	0.6	1.3	4.6	5.2	4.8
Total amount of state support as percentage of total public education expenditure of local governments (%)	58.5	56.2	53.9	44.3	40.6	53.1	55.5	54.4	56.0

* Preliminary data (calculations by László Limbacher)
** Wage policy measures also had centralised allocations in 1996.
1 Based on financial reports of local governments and state-financed institutions, excluding education not financed by the state. Also excluding educational counselling, career orientation, methodology and other responsibilities. Excluding primary art schools before 1994.
2 Excluding certain allocations of the Ministry of Education that support public education institutions in part only.
 
Source: Ministry of Education, state budget reports

The GDP stopped decreasing in the stabilisation period of the economy (1995-1996), however, the position of education in the budget did change. The austerity measures of the budget and financial difficulties of local governments resulted in a decreasing proportion of educational expenditures. Austerity measures were not followed by much rationalisation: the number of employees did not drop and the institutional structure was not altered. A rather high inflation devalued the income of teachers, and material expenses were reduced to the minimum. The joint effect of demographic trends (namely a drop in the number of schoolchildren), normative support and high inflation made curtailment of resources possible and, technically speaking, easy in the field of public education. In the 1997-1999 period there was a dynamic boom in the economy with an annual GDP growth of 4-5%. Public education expenditures of the budget increased in real value, but not as fast as the GDP. Although the absolute position of education improved, its relative position became somewhat worse than before 1998.

3.2 The Main Features of Funding Hungarian Public Education

The principles to fund Hungarian public education follow from the 1990 Local Government Act. According to the provisions of the Act, primary and secondary education is provided by local governments, but the overall responsibility remains with the state. Financial guarantees are given jointly by the state and the local governments.

Financial coverage of public education is provided primarily by the budget with contributions by the school maintainer, optionally augmented by tuition fees paid by students and other revenues of the school.

Financial support of public education by the state is defined in the annual budget. State support appears primarily in the budget of the Ministry of Interior: this chapter contains the normative support of local governments as well as some of the centralised allocations earmarked for public education. State support covers an average of 50-70% of public education expenditures of local governments.

There are two types of state support: normative and earmarked subsidies. Local governments receive normative subsidies automatically, whereas they have to individually apply for earmarked subsidies. Normative support is generally calculated according to the number of pupils. Local governments may freely spend the normative support.

Maintainers of schools are also free to plan the school budget, the only restriction being that this budget has to cover the tasks of the school as defined in the relevant legal provisions. Local governments control the expenditures of schools by approving school budgets.

According to the principle of sector independence, the normative support given to school maintainers other than local governments and the state cannot be less than the same normative support given to local governments. Church-affiliated schools are also entitled to additional support on the basis of their contract with the state. Additional school maintainers (other than local governments) are also entitled to further support if they make a contract with the local government to provide the task of public education.

3.3 Educational Expenditures in the Budget

In the 1997 - 1999 period - as opposed to trends in previous years - in every year public education expenditures increased to a greater extent than the consumer price index. The proportion of the increase between 1998 and 1999 was 13.2% in nominal value and 3.2% in real value.

The increase of expenditures in real value was due to the wage increase in public education. Following the considerable decrease in real value in 1996 (by over 10%) the average increase of gross incomes was 23% in 1997 and 18.1% in 1998.

The proportion of sharing the costs by the state and local governments as reflected by the amount of normative support did not change much: the percentage covered by normative support somewhat decreased in 1997 and in 1998 and increased again in 1999. In 1999 normative support covered an average of 51.2% of public education expenditures (Table 3.2).

The amount of normative support per student is also affected by the actual number of pupils. As opposed to previous years’ trends, in the scholastic year of 1998/99 the number of primary school pupils increased, while there was a decrease of secondary school students, with the ongoing structural changes. The noticeable drop in the number of technical school students in the 1996-1998 period was not compensated for by the increase in the number of secondary school students. As a result, the per student costs in secondary education increased considerably, although to a lesser extent than in primary education. The two main reasons of the increase in costs were the structural transformation of education - primarily the increasing number of students enrolling in secondary vocational schools - and the extended period of training and increased number of theoretical classes.

3.4 New Elements in Funding

The 1996 Amendment to the funding provisions of the Public Education Act introduced new guarantees. The annual normative support given to local governments was calculated on the basis of public education expenditures of the local government in the previous year (at the time in question this amount is 80%). An additional, earmarked support was introduced for the nursery and school education of children belonging to ethnic minorities and also to schools with two languages of instruction. A new element in the system is the centrally allocated amounts that are earmarked for the development and renewal of public education, the establishment of a computer network, in-service teacher training, the new system of post-professional examination and pedagogical services and pedagogical service providers.

With the new government taking office in 1998, considerable adjustments were made in the funding system in order to increase efficiency and to meet the objectives of the educational policy. More emphasis was laid on sector-independent funding, new guarantees were introduced to give equal opportunities to local governments maintaining schools and earmarked funds were more closely associated with the objectives of the government.

In 2000 the minimal normative support given to local governments was increased from 80% to 90% of the expenditure of the previous year, which meant a new, stronger guarantee of the budget. This adjustment increased total normative support by HUF 30 billion. At the same time the amount of subsidies earmarked for professional development and quality improvement of local and regional services also increased.

In order to compensate for social inequalities a new normative support was introduced to cover the costs of extra care taken of underprivileged students (totalling approx. HUF 3 billion in 2000) encouraging compensation classes. A part of this is the considerably increased amount in the budget allocated for purchasing textbooks by students: this amount was 26% higher in 2000 than before.

Between 1992 and 1999 the normative state support of public education institutions maintained by other organisations (not local governments or the state) increased more than tenfold. The 1999 Amendment to the Public Education Act considerably transformed the system of subsidies for public education institutions maintained by other organisations than local governments or the state. The majority of expenses is covered by the budget in a sector-independent manner. The situation is even better in the case of church-affiliated schools, since they are reimbursed for the total average amount spent on public education by local governments in the previous year. An important change introduced in September of 1999 is that even the second diploma of non-primary education can be received without paying tuition fees.

A significant change is the extended scope of public funds on the county level and in Budapest. The multilateral boards of trustees of these funds may now decide in matters and allocate funds in more cases of professional development.

The most radical changes affecting local education and teacher employment are related to the increased number of students’ classes: an average of 1.5 more classes per week. Curricular changes may have financial effects in the long run, as well as the new funding for out-of-class activities for students with special needs.

The planned development and the badly needed new system of funding in vocational education seems to be feasible only on the long run. The reason for this is that a uniform, normative way of funding does not serve the objective of providing equal opportunities in this type of school. Local governments, on the other hand, find it more and more difficult to fund vocational education.

In 1999 local governments spent somewhat more than a quarter of their current expenditure on education (Table 3.3). Another characteristic feature of recent times is the increased proportion of centralised subsidies: this form of support did not exist in the early nineties, while its proportion in 1999 was as high as 8.4% of all public education expenditures by local governments. Local governments had to find other sources to pay for the difference between the amount of normative support and the actual expenditure. As a result, the situation of education in terms of the budget was more and more dependent on the financial situation of individual local governments.

 

Table 3.3    The percentage of education expenditure within the total expenditure of local governments, 1994-1999 (%)

	1994	1995	1996	1997	1998	1999
Current expenditure	71.0	73.0	71.1	67.0	67.5	70.4
Educational expenditure within current expenditure	26.9	26.9	26.2	24.4	24.6	25.5
Total developmental expenditure	19.5	14.4	15.3	18.0	20.1	17.1
Educational expenditure within developmental expenditure	2.8	1.8	2.0	1.9	1.9	1.8
Other expenditure	9.5	12.6	13.6	15.0	12.4	12.5
Total expenditure	100.0	100.0	100.0	100.0	100.0	100.0

Source: Ministry of Finance

The significant increase in the normative support of public education was paralleled to a re-allocation of subsidies among local governments. Poor settlements found themselves in a more advantageous situation, rich settlements (generally towns) found that their current situation was less favourable than before. Local governments maintaining many schools (small towns) may find it more difficult to finance public education institutions. At the same time, the role of earmarked subsidies has become more prominent in funding.

As for the relative proportion of personal expenses and material expenses, in the 1994-1998 period material expenses increased by a mere 22.7% in nominal value, which is in fact a serious decrease in real value. At the same time the proportional expenditure on salaries in the late nineties was as high as 80% (Table 3.4).

Companies are now playing a more significant role in funding vocational training. All companies have to pay an amount of 1.5% of all wages to support vocational training, and some of this (0.2 % in 1996 and 0.5 in 1999) may be spent on training their own employees. Companies supported vocational training with HUF 27 billion in 1997 and HUF 30 billion in 1998. In these two years an annual HUF 15-20 billion went directly to vocational schools and approximately 10 billion was accumulated in an earmarked fund. Based on the recommendations of the National Council for Vocational Training, the fund supported vocational training in a decentralised form with HUF 2.3 billion in 1997 and HUF 2.65 billion in 1998, distributed to counties according to the number of students.

Hungarian public education has serious efficiency problems. Under the current conditions there are in fact no opportunities for economies of scale. 70% of Hungarian local governmental educational tasks (especially in those communities with a population of 2000 or less) - partly undertaken on a voluntary basis - put a limit on size efficiency. Still, the number of schools jointly maintained by two or more local governments has not grown.

 

Table 3.4    The percentage of expenditure on salaries in current educational layout broken down according to school types, 1990 - 1999

Year	Nursery school	Primary school*	General secondary school*	Secondary vocational school*	Vocational training school
1990	66.6	77.6	77.0	73.5	74.1
1991	67.1	76.5	77.2	74.7	73.4
1992	65.8	74.4	74.1	72.7	70.0
1993	68.6	76.5	75.2	73.0	73.2
1994	70.8	77.9	76.8	75.1	69.8
1995	73.2	82.6	80.0	78.2	72.2
1996	70.0	76.6	71.6	65.4	63.1
1997	73.5		83.5		67.7
1998	74.0		83.4		68.3
1999	72.0		84.0		74.1

* Calculated jointly since 1997
Source: Ministry of Education

In international comparison the teacher per student ratio, one indicator of efficiency, has been rather poor for years. In OECD countries the student per teacher ratio was 17.1 in primary schools and 14.9 in lower secondary schools in 1998. In Hungary these figures were much lower, 11 and 11.1, respectively (Education at a Glance, 2000).

With the small number of obligatory classes taught by teachers and the relatively high number of teachers it is still unlikely that the budget will be able to provide for higher real incomes for teachers. The unchanging number of teachers, combined with a decrease in educational tasks, will keep teachers salaries low. The price of safe employment is the fact that teachers have become the worst paid intellectuals in the nineties. Hungarian primary education requires far too much labour by international standards, resulting in a high proportion of expenditure depending on the number of teachers, both in relation to education-specific and total expenditure.