A Broken Water Main

The latest mishap

A few days before Christmas, a water main broke in a suburb of Budapest paralysing the water supply of three municipalities: Érd, Diósd and Törökbálint.  The population of these suburbs has grown steadily over the last decade, testing the already inadequate and neglected infrastructure of utility and water supplies.  During the last three years, the population of Érd increased from 50,000 to 80,000 residents.  Breakdowns of the power and water supplies began to occur regularly.

The latest mishap of the water main occurred in Érd. An old 600 mm water main of cement and asbestos, manufactured in the old Soviet Union, broke unsurprisingly. When a rescue team dug out the scene it was discovered that a less than two-meter section of the water main needs to be replaced in an expeditious manner. The water works operated by the municipality looked for a replacement of this type of pipe, first in Hungary, but then they had to face reality: no good replacements are available in Hungary and the old Soviet pipelines manufacturer is in another (arms) business operated by a Russian oligarch.  Accordingly, the town of Érd had to search for a good fit, which they found in Milan, Lombardy.  It took three days to replace this less than two-meter segment of the water supply.  Meanwhile, the residents of the three suburbs procured their water from old fashioned water carts.

This breakdown highlights one of the serious problems of Hungarian infrastructure and water supply.  One of the many consequences that results from neglect and underfunding.  This sector has been underfinanced and seriously neglected for more than a decade.  The water works and the pipeline system used to be managed by municipalities, and the price of water and sewage were (almost) reasonably regulated by the central Government until the ruling Fidesz Party came up with an election ploy in 2014 which announced centrally fixed reduced prices for gas, electricity and water.  This system offered generous subsidies to all consumers of these utilities at the expense of the ever-growing deficit of the country’s budget.

This subsidy was the promise of the notorious “rezsicsökkentés,” (utilities rate reduction) implemented by the utility companies for the benefit of all users across the board.  Prices of utilities were kept subsidized for households and businesses alike, small and large on an equal footing.  Accordingly, the generous subsidies helped both the truly needy and the rich who operate large swimming pools, whose water temperature is regulated by gas boilers and evening parties are lit up by expensive lights thanks to cheap electricity.

As for the water supply, in some towns and villages the almighty central Government took over ownership of water works and the supply network.

Economic textbooks teach us a simple truth: neglect and underfinancing result in interruptions, breakdowns and accelerated deterioration of infrastructure and services.

This process went hand in hand with the curtailment of municipalities’ authority to tax. In 2023, local governments have collected almost nothing from residents and businesses within their respective jurisdictions.  In the old days of the 1990s, the commencement of a new political regime, municipalities kept almost 40 percent of all income tax paid by their residents (individuals and businesses alike). This percentage was reduced to almost zero in the next decades.  As municipalities, small and large, lost their taxing power that could support maintenance of the water system, it was only a question of time when mishaps would pop up.

This system of taxing and financing, which has been turned upside down, is closely linked to the use of EU funds in the Hungarian economy.  As local governments lost their authority to tax, they do depend on Government subsidies and EU funding.  The process got extremely politicized as the Fidesz Party openly rewards loyal municipalities at the expense of a few rebel towns and villages.  Budapest is rebel city in this picture.  If you elect a Fidesz-friendly mayor, you are better funded by various forms of permanent and ad hoc subsidies.  And this is no secret.  In both general and local elections, the campaign openly conveys the massage: if you remain loyal and vote for the Orange Fidesz ticket, you may receive discretionary funding; if you vote against us, you will starve –  and will also experience thirst when a water main brakes.

Most EU members adopt a system of internal subsidiarity.  Decisions are made at a level that best conform with the needs of citizens.  What would be a normal system in a country that adopts a sensible method of subsidiarity (you tax at the proper level where local infrastructures are operated), this Government hands out subsidies to the penniless municipalities, and a good chunk of the funding comes from EU transfers to Hungary.  Municipalities and operators of infrastructure may submit applications in various invitations to tender for funding projects that cannot be financed from their meager budget, and the lucky ones are rewarded.  Hungarian municipalities do not take it for granted that it is their right; rather, they would say “we did win” funds in mostly rigged tender processes. Yes, residents, too, proudly second that “we won” – so goes the victory slogan.  We got some funding out of the generosity of the central Government.

What used to be a right of each municipality to tax businesses and residents that would be by and large adequate to fund local services, is no longer the case in Fidesz Land.  You may apply for Government largesse, and if you are familiar with this system, you know well that this is a bumpy road: sometimes you need to pay your corruption dues or in other situations you would use the political levers to secure funding for essential services.

This is not quite socialism, but you may say that this is surely another road to serfdom.

Andras I Hanak