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Report from Hungary: About Surviving – Katrin Kremmler

October 22, 2006

Report from Hungary: About Surviving

Katrin Kremmler

As an artist without an institutional background, you make your compromises – rather than doing a fulltime job, you probably do freelance work, are your own boss and have the time to work on your projects. Right.

In Hungary, until now you could get by on a very frugal life style, doing just that. With the new government policy known as the „restriction package“, life becomes more difficult for everybody now, and particularly so for the self-employed.

To be a freelancer in Hungary, you have to found a company, which then technically employs you. This is a strange solution to begin with, because it assumes your circumstances are comparable to profit-oriented business activity. And it means you pay monthly social security and taxes for yourself both as the employer and as the employee.

So far, your company (=you), in order to have a neutral balance, had to make at least 307 EUR/month after VAT – the net minimal wages being ca. 148 EUR, and social security and taxes for minimal wages being 159 EUR (exchange rate until Sept.: 272 HUF for 1 EUR). Doesn’t sound so hard. Now – everybody in Hungary knows you can’t really live on minimal wages. For a modest life in the capital by Hungarian standards, you need at least 460 EUR/net/month, especially if you have to pay rent. A single room apartment in the city these days starts with 190 EUR plus utilities.

You can’t live on your minimal wages, and of course the government knows that too. So, what are all those people living on? In the business sector, very commonly the entrepreneur employs people for minimal wages, pays the relatively low social security fees and gives the employee some more in undeclared cash. Also known as social security fraud and tax evasion, and this is what the government wants to crash down on now. According to the new law, the tax authorities have to assume that people on minimal wages in fact earn at least 400 EUR net (because otherwise, how could they possibly survive – right?), and their social security rates increase accordingly.

This measure, though unpopular, is more or less realistic in the business sector, and for the employees on minimal wages the changes are relatively small.

But for people who are self-employed and have to pay both the employer’s part and the employee’s part – that is, you and me – the changes are over-proportional and right-down lethal.

In order to take home a net minimal wages of about 161EUR, you have not to pay 165 EUR as it used to be (exchange rate October: 260 HUF/1 EUR), but 346 EUR for social security and taxes every month, regardless if you had any income or not.

Now, you in the West might say, 346 EUR is not that bad, is it, you just pay it and go on with your life. Well it is bad, if your average monthly income is 370 EUR, half of which you used to live on. You know, be your own boss, have time for your art etc.* Until now, if you really really wanted to, it was hard, but it was possible.

To further complicate the matter: The government gave enterpreneurs an amnesty deadline to declare their employees’ „real income“, if it was lower than 400 EUR – those undeclared cash payments mentioned before. You, self-employed, shell-shocked by those drastic overnight changes, with no idea just where to take these 364 EUR from until the next payment deadline, only want to keep your monthly payments down. So what do you do, you declare your „income“ to be a bit over the gross minimal wages (which is 230 EUR), say 300 EUR gross. In doing so, you risk the most dreaded thing on earth, a control by the Hungarian Tax Department. They might come and check what it is you’re living on, and they will sure find something to get you in trouble, as that’s what they do. But if you just don’t have it, you take a deep breath and risk it.

Accordingly, you pay a bit less for social security and taxes, only 270 EUR, which you hope to somehow just be able to make – but this for a net wage of 138 EUR instead of the good old 161 EUR net minimal wages. Why? I thought I declare more means I at least can keep more? No, says my accountant lady, you know, if you’re over minimum wages the tax/social security ratio is different.

Nice, ey?

So anyway, you end up paying more, keeping less, because these are hard times. The question is rather, where do you prefer to run up debts if you don’t earn enough : with the tax department (by not paying your social security and taxes every month, or late), or rather just produce loss for your company (by asking the family for a loan, which then of course doesn’t count as „income“) ?

You prefer the latter, as you can always be a company writing red numbers (though again, then you risk a visit from the tax department), but you can’t cancel your company and get out of this mess unless you paid all your outstanding debts with the latter, plus late fees. Nice.

There really is massive tax evasion here, no doubt about that. And I also agree to the necessity of this restriction package in general. As I said, these are hard times. But this policy, tackling employment practices in the business sector, is going to wipe out small enterprises and the low-income- self-employed freelancers (you and me – language teachers, translators, graphic designers, small shop owners, small organic farmers,…) in this country, anyone doing their own thing getting by only just. People will be pushed into underpaid jobs just to have their social security covered, and/or pile up debts, and/or become unemployed. And THEN what.**

If you, in addition, are a foreigner (and without a partner earning for two, or a supporting family network etc.), and caught complaining, you get asked, „what are you doing here anyway?“. Well yeah, sure, I’m wondering too.

Other foreigners I know living in Hungary for years now – and far more successfully than me – tend to work illegally. If you know where, you can purchase invoices (for about 10%), and you may get a private health insurance from your home country to be at least covered for accidents. Though highly illegal, I guess this kind of arrangement will become more popular now.

(Note: This is the situation as far as I’m experiencing it, if anyone from Hungary happens to read this and wants to correct me, or has any good advice, I’m all ears!)

K.Kremmler@gmx.net


 

* Some examples for comparison: My friend X: university lecturer, full time job, net salary : ca. 550 EUR (salaries in Health and Education are scandalously low in Hungary). My friend Y: assistant with a multinational company, full time job, net salary: ca. 1100 EUR.

 

**, My friend Z, excellent freelance craft woman in her mid-50s, is still in debt with the tax department for her last year’s social security payments, as for a long period she didn’t get any proper work in her profession. This year she’ s only paying off the accumulating interest rates for late payment. Unemployment benefits for people in this situation would amount to about 80 EUR/month as far as I know, they’re not really an option. My friend Z

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