C.) INCREASE AND/OR MAINTENANCE
OF STATE CONTRIBUTIONS

4. Increasing State Contribution to Activities Indispensable for Social Development but Unable to Survive in Pure Market Conditions
4.1. Increase of State Contribution to Cultural Activities, Education, Healthcare and Scientific Research
4.1.1. Cultural Activities and Education
4.1.2. Healthcare
4.1.3. Scientific Research and Development
4.2. Family Allowance
4.3. Old Age Pensions and Social Welfare Benefits
4.4. Public Safety Measures
4.5. Crisis Management of Underdeveloped Regions of Hungary
4.6. Home Renewal Subsidies
4.7. Higher State Contribution to Environmental Protection and Healthcare
4.7.1. Public Awareness Promotion, Education and Advice on Environmental Protection
4.7.2. Offsetting Energy Price Rises; Improving Energy Efficiency
Crisis Management in North-eastern Hungary through Energy Efficiency
Use of Stockpiling Fee of Crude Oil and Petroleum Products for Environmental Protection
4.7.3. Subsidies to Environmental Friendly Means of Transport
a) Improved Public Transport Services
b) Improved Railway Transport Services
c) Crisis Management in North-eastern Hungary through Railway Transport
d) Better System of Logistics
e) Traffic Calming
f) Equal Financial Treatment for Cyclists
g) Use of Taxis
4.7.4. Air Protection
4.7.5. Protection against Noise and Vibration
4.7.6. Integrated Waste Management
4.7.7. Water and Soil Protection
4.7.8. Environment Friendly Agriculture and Maintenance of Soil Nutrients
4.7.9. Natural Preservation; Protection, Improvement and Expansion of Forests and Green Areas
4.7.10. Cleaning up Long-Term Environmental Damage and Damaged Areas
4.8. Increased Support to Small and Medium Sized Enterprises
4.9. Subsidies to Pharmaceutical Research and Development
4.10. Medical Tourism

4.1. Increase of State Contribution to Cultural Activities, Education, Healthcare and Scientific Research

4.1.1. Cultural Activities and Education

It is a commonplace to say that a country’s future depends on the quality of education and culture today. Economically developed countries of the world are devoting much attention, time and money to improving their education systems.

Having been inaugurated, the President of the USA, Bill Clinton, named four pillars of improving the country’s competitive position. He expressed one of them as - "The key target of future investment is the American people itself; better education of all Americans will be given first priority."

As far as Hungary goes, the service quality in public education and culture is deteriorating.

"1 – 1.5% of school-age children never start going to school, 6 to 8% never finish the elementary school, and 25 to 30% of them are not able to study further due to insufficient skills to read and write. 30% of the children leaving the elementary school can hardly read. Researchers have found that reading comprehension of children aged between 9 and 18 has declined by 20% over the past five years. Illiteracy is not past; a growing number of children in each age group are in fact illiterate. No money is available to conduct representative surveys, but hundreds of thousands of people can be regarded as illiterate in Hungary…" (Source: the periodical Kiáltás, No. 24/1997.)

These sad facts are closely connected to another unfortunate trend in the same period: the living standard and working conditions of teachers, workers of pubic education and public collections are the worst among all trade groups. Figure 10 summarises the allocation of funds for education between 1992 and 1997 as a percentage of GDP. (As GDP itself was showing a downturn during that period, the absolute figures would give an even worse picture.)

Figure 10

Public Education Expenditure

Public education and public collections are fundamental elements of public services. Act CXL of 1997 on Culture places the ultimate responsibility for those services on the central and local governments. In practice, however, local governments lack the financial resources to complete their tasks. The situation has got so bad by now, that attacks are launched on public institutions and their low-salary small staff. This is something to be rooted out. To do so, the current 60% rate of state budget contribution to public education and related services needs to be raised to 80%. This short-term increase in the expenses would be more than offset by the development of local-government-run institutions, civil movements and cultural standards in the long run. Local communities can feel proud of people who have the sufficient knowledge and skills not only to adjust to the ever-changing circumstances but also to bring about and define the direction of that change, from which the entire society would benefit.

As social security taxes are reduced, more funds will be available locally to promote culture and education. Additional sources can be made accessible through government funding. Salaries of public workers should be raised by all means. A uniform and overall rise is needed in the form of a wage reform by at least 5% in real terms. This way, prices as well as wages can get closer to the average in the EU.

4.1.2. Healthcare

All said above is true for healthcare as well. Only healthy people can make up a healthy society (and economy). As far as health and life expectancy go, Hungary is somewhere at the bottom of the list of developed and partly developed countries of the world. (See Figure 11.) And the trend is showing an extremely poor picture. (See Figures 12 and 13.) At the same time, the Hungarian Chamber of Physicians has found that funds spent on healthcare services in 1997 were only a half of the 1990 figure in real terms.

Prevention is the key element of all healthcare services. It receives less attention and money than it should despite the fact that prevention and avoidance of illnesses are much cheaper than treatment and cure of those illnesses.

Figure 11

Life Expectancy at Birth in Selected Countries

Source: Statistical Yearbook of Hungary 1997

Figure 12 Figure 13

Notes:
1.) National data also follow the unfavourable trend in the capital.
2.) Even the early 90’s showed an exceptionally high number of cases compared to some years before.

4.1.3. Scientific Research and Development

Another commonplace to say is that macro-level development is not feasible without scientific research and development (R&D). However, real value of funds available for R&D went down by 64% from 1990 until 1996. (See Figure 14.) Per capita R&D funds in Hungary is just slightly higher than one tenth of the average in developed countries. The reason is unclear because it is not an item where the state can save a lot from reducing the expenditures.

Figure 14

Table 53 summarises the state subsidies and funds available for research and development projects in 1998 and 1999. It is clear from the table that there was no change in real terms between 1998 and 1999. Furthermore, R&D’s relative share in the state budget total went down from 1.33% in 1998 to 1.22% in 1999, which is an unacceptable trend for the future.

Table 53

Subsidies and Funds for Research and Development as Published in the Acts on Accomplished Budget Goals for 1997 and on Budgets for 1998 and 1999

The Government submitted the Bill on the 1999 State Budget (T/325) in November for discussion in parliament; the Bill includes preliminary data on 1998 actuals.

Scientific and Research Projects were granted HUF 2.5 billion, which is less than a thousandth of all budgetary expenses. Subsidies for the National Academy of Sciences and related research schemes should be granted additional funds worth HUF 5 billion.

4.2. Family Allowance

Family allowance is only half of the value in 1994 in real terms. Given the poor conditions of families with children as well as demographic objectives of the government, the value of the allowance needs to be raised to the value in 1994. It involves a great deal of funds, which only allows gradual implementation, but it should be started as soon as possible.

4.3. Old Age Pensions and Social Welfare Benefits

All people have the right to earn enough to live without uncertainties. So do pensioners and handicapped people. Real value of pensions needs to be sustained or even increased. Needy, handicapped and disabled people have to be granted equal chances that enable them to adapt to ordinary living and working conditions.

4.4. Public Safety Measures

We agree with the spirit of the state budget when it underlines the importance of public safety. However, financial support of the operations of the police is an essential but not sufficient element of safety measures. Actions and tools discussed in other chapters of this document, such as steps towards a sound environment or intense involvement of civil movements and individuals in local issues have an indirect but beneficial impact on public safety. (Studies prepared by the Hungarian Traffic Club and Clean Air Action Group in 1997 and 1998 respectively have found that public safety issues in Budapest depend on a number of factors, including healthy environment too; their findings are worth considering outside the capital as well.)

4.5. Crisis Management of Underdeveloped Regions of Hungary

Underdeveloped regions of Hungary hold back development all over the country and reduce Hungary’s chances to join the EU. Thus, regional improvement is vital through enabling inhabitants of those regions to manage that improvement themselves. Proposals in the current document also have favourable impacts on underdeveloped regions (e.g.: railway rebates, lower rates of labour taxes and charges, etc.).

Revenues generated by restricting illegal trade of fuels in regions close to the borders should finance development projects in the same regions. Improvement should be focused on education, culture and environmental protection, through, for instance, energy efficiency schemes.

4.6. Home Renewal Subsidies

The government is determined to provide financial assistance for home construction through a series of means (such as a portion of the VAT generated during the construction can be reclaimed, or home loans backed by mortgage are about to start soon). It is a respectable initiative but, perhaps, unreasonable. The number of homes needing renovation is tremendous. An estimated HUF 800-1,000 billion are required to renew or modernize homes and buildings in poor condition in Budapest only. The past decades have seen a substantial deterioration in the quality of the buildings – and in recent years this process has even accelerated. The more delay the renewal suffers, the more expensive it will get. Renewals, however, are discriminated against construction. VAT is not reclaimable, favourable loan products or state support are not available, as well as the income generated from the sales of real property is subject to income tax if it is used for renewal and not purchase of another property.

A fundamental economic principle is that costs of maintaining and renovating an existing property are normally much lower than buying a new one or implementing a new investment. Therefore, the current practice is unfortunate for various reasons. First, it encourages building new homes and neglecting the old ones. Second, new construction occupies more and more (green) areas while people move out of existing residential areas. Renewal require less material and more labour than building new homes. (In Hungary, given the condition of existing homes, the costs of renewal are the third or the quarter of those of building new houses.) Renewal is more rational and sensible for economic, environmental and labour reasons as well, and so it should be supported by

• making VAT reclaimable,
• granting favourable loan conditions (e.g. mortgage),
• providing income tax allowances.

4.7. Higher State Contribution to Environmental Protection and Healthcare

The parliament unanimously adopted the National Environmental Protection Program on 17 September 1997. It is urgent to accomplish it in practice. The objectives of the Program can be accomplished first of all through environmental tax reforms and the abolishment of state support for polluting industries. Furthermore, laws and regulations need to be adjusted to meet current standards and requirements. Environmental authorities and education need to fulfil their tasks as well. Direct state support to individual entities is generally not the most efficient means of improving environmental quality, however, under current circumstances, it is needed to achieve the goals of the Program.

Direct support for environmental and health protection purposes should be granted through budgetary channels of the Ministry of Environmental Protection and other budgetary and extra-budgetary funds. Relevant ministries and government offices need to consult on allocating the funds, as well as the EU should be involved to use the most of the support available. To that end, we propose that HUF 5 billion of the blocked 18 billion from the budget of the Central Environmental Protection Fund should be released in 1999 and used for the purposes discussed in the following sections of the document.

A significant portion of the funds devoted to public service activities should finance environment projects (e.g.: sewer development). Local governments in charge should be made aware of its importance and given incentives to carry out their tasks.

4.7.1. Public Awareness Promotion, Education and Advice on Environmental Protection

Non-commercial communication channels, educational advertising, schools and other training institutions should be responsible for launching campaigns to introduce and promote ways and means of managing households economically and healthily.

Revenues of commercial advertising have been on the rise since the early years of the market economy in Hungary. Revenues of advertising exceeded HUF 100 billion in 1998. A considerable portion of the commercials advertises activities that are harmful to the environment and human health (such as tobacco, alcoholic beverages, motorcars, etc.). At the same time, educational advertising and communication to sustain or better our environment and health are hardly given any money. The whole society suffers from this, therefore radical changes should be implemented soon.

Non-commercial communications, and primarily, educational advertising should be granted financial support to shift the emphasis towards human values, promote culture and meaningful leisure activities (such as sports), give guidance for leading a healthy and environment-oriented way of life, and improve the environmental awareness of people, which is still low.

The following is a list of benefits achieved through non-commercial communications and educational advertising in countries where they have been carried out.

• Family protection, life and property safety, prevention of accidents and injuries, consumer protection, health protection, environmental protection and energy saving are areas where educational advertising brought very positive results.
• The number of diseases went down, and so the government saved on healthcare expenses.
• The economy run more efficiently as a result of energy efficiency.
• People took a more active part in local and public issues, which fuels social development.
• People started to feel healthier and more contented.
• Information spread by the media got more balanced and objective, which reinforced democracy.
• The government became more popular.

HUF 17 billion of the revenues of the National Culture Fund should be devoted to educational advertising and communications. To that end, an addendum should be to the regulations on the use of the funds, which could go as follows:

"…promoting preferred ways of consumption and raising environment consciousness."

Once that modification is made and implemented, democracy will benefit from it through more powerful civil awareness, which is indispensable for the development of the society. Civil movements and organisations could have an extremely important role in this process and they need to be supported in their activities.

4.7.2. Offsetting Energy Price Rises; Improving Energy Efficiency

The rise in prices of energy in 1997 and 1998 should have been reasonably compensated. We support the proposals of the Advisory Board at the Hungarian Energy Office about compensation. Individuals and public institutions must be entitled to compensation. Compensation is by all means needed to leave room for the increase of energy taxes. Otherwise, social tensions would grow and prevent taxes from growing substantially at the required rates.

We also urge providing funds for energy efficiency. Moreover, we feel that the majority of available funds needs to be allocated for energy efficiency, since it is the only way to reduce, in a fairly short time, the need to continually pay compensation, while improving the economic structure and creating new job opportunities. Energy efficiency is a useful tool for increasing economic efficiency, and thus promoting economic development in Hungary, which is an essential pre-requisite for accession to the European Union. It is important to note that although they exist, other methods of boosting economic growth (such as pure banking tools) may carry the risk that growth is not accompanied by better efficiency.

Energy efficiency, or rather, better energy efficiency, means that economic performance is improved while less energy is used. Energy efficiency is not about austerity measures or irrational saving. The energy efficiency scheme should be financed primarily from domestic, government funds. At present bank-financed modernisation programmes are not feasible owing to the high level of interest rates. Therefore, it would be essential to ensure reduced rates of interests by re-allocating available funds (a few examples prove that this works), and to develop the national financial policy so that speculative financial activities could be controlled and the Hungarian banking system should operate at minimum interest margins. Energy efficiency is the most effective way of economic development, since it combines effectiveness and economic boost with higher employment.

In 1995 the government adopted a decree on energy saving and efficiency (Action Plan No. 399/1995 on Energy Saving and Energy Efficiency). The intention is remarkable, however, the tasks described in the Plan have hardly been accomplished. The current government has inherited the responsibility to accelerate the process of accomplishment. Funds are never enough but available ones (released funds of the Environmental Protection Fund and other sources, such as German loans) are sufficient to advance.

Ongoing accomplishment of the Action Plan could provide numerous people with jobs. It could increase the GDP as well as improve the balance by several billions of forints after more taxes and charges are collected.

Energy efficiency is far from being a fully exploited opportunity. It is true even if efficiency is measured at current prices of energy.

A joint study titled Macroeconomic Impacts of Energy Efficiency (published in Budapest, 1998) of the economic research firm GKI and the energy development and research company EGI has found there are measures that can be economically implemented immediately, even at the current prices.

• They assume that electric energy generation is partly replaced by energy efficiency measures and compare the marginal costs of investment for saving energy with the costs of establishing one unit of extra capacities. When only the costs of starting up an extra capacity are considered, the marginal costs of replacement are lower than those of establishing extra capacities for up to 600 MW. When running costs are also considered (primarily the costs of fuel), the above figure moves up to 650 MW. (Additional costs are defined assuming 30 years of life.)
• Assuming a ten-year period before returns are generated after improving efficiency, it is more worth saving energy than using additional energy supplies up to the following proportion. (The numbers are expressed in percentages of total primary energy consumption in the given sector.)
  • households: 15.1%
  • communal sector: 4.7%
  • industry (not including energy generation): about 18%.

The above numbers reflect current prices. Once energy prices incorporate the real costs of energy generation, saving can show its benefits on a larger scale. The energy policy should be elaborated accordingly.

Energy efficiency is a precondition as well as a stimulus of any modernisation scheme in Hungary. Realising the benefits of efficiency programs, governments all over the world are ready to provide financial support. Appendix 11 summarises the potential tools of that support specifically in Hungary.

District heating is a key element of energy efficiency programs. Its improvement is essential; a draft proposal worked out for the Ministry of Economics is found in Appendix 12. (To our best knowledge, the Ministry is reluctant to publish the draft and considers submitting a much weaker version for approval.)

The Hungarian Energy Office has elaborated a specific program of energy efficiency in public institutions. However, implementation is stuck due to the law on state guarantees. It is absurd that the government takes general guarantee for energy imports (see § 33 of Act XC of 1998 about the 1999 State Budget), while no guarantees can be taken for energy efficiency. To put this controversy right, we suggest that the Act be modified as follows:

"33. § (1) Total value of one-off guarantees undertaken by the government during 1999 shall not exceed 1.0% of Total Expenses stipulated in § 1 above.

(2) Over and above the rate defined in paragraph (1), guarantees can be undertaken for imports of crude oil, natural gas and electric energy, purchase of emergency stocks of crude oil and crude oil products as discussed in Act II of 1993 as well as energy efficiency projects."

Hungary’s commitment taken by signing the Energy Figureer Accord also requires the country to improve energy efficiency in Hungary. Paragraph 19 requires the undersigning parties to "give priority to the improvement of energy efficiency and sustainable use and development of renewable energy resources."

To feel the tangible benefits of energy efficiency, government expenses should be raised by HUF 30 billion.

Crisis Management in North-eastern Hungary through Energy Efficiency

The rise of energy prices will probably have unfavourable impacts on the metallurgy and heavy chemistry industries in Borsod county (in north-eastern Hungary) since crisis management so far has not reckoned with the consequences of that rise. Former heavy industry plants could serve the development of the region and could make products to be used for energy efficiency. The German government loan to Hungary should partly be used for this purpose. The Public Procurement Act needs to be modified so that employment is increased in the county and other under-developed segments of the region. We propose that a modification requiring a minimum 30% share of the region in fulfilling public procurements should be incorporated in the Act. Even more, the share of wages and wage-related taxes should also be prescribed. The measure meets WTO requirements, so it would be a mutually satisfactory means of protecting domestic labour and attracting beneficial foreign investment.

Use of Stockpiling Fee of Crude Oil and Petroleum Products for Environmental Protection

Government funds are not the only possible financial sources of energy efficiency. The Crude Oil and Petroleum Products Association increased the stockpiling fee by 36% in 1999 after an also substantial increase by 42% in 1998 (see Table 54). This year’s increase equals HUF 9 billion in nominal terms; whereas total fee revenues are close to 40 billion.

Table 54

Stockpiling Fees
HUF / metric tons

Source: Publications of the Ministry of Manufacturing and Trade (1998; 1999)

Stockpiling itself carries a great deal of risk of pollution, and especially during the shipment. Therefore, half the amount of the fees should be set aside for energy efficiency and environment protection purposes.

4.7.3. Subsidies to Environmental Friendly Means of Transport

Motor vehicles cause severe harms to the environment, health and the economy. To ease the damage, it is vital to develop and promote alternative means of transport.

a) Improved Public Transport Services

Public transport is a public service, therefore, its performance is not reasonable to be measured only by efficiency ratios used in the private sector. (It is, of course, not that we disregard the necessity of efficient and rational operations of public transportation companies.) As a public service, public transport should operate efficiently to obtain the most social, economic and environmental benefits that financial ratios can hardly reflect. Thus, besides existing state support, we propose that public transport should be improved through a series of measures and corresponding standards.

1. Employers should be given the right to expense costs of local public transport reimbursed for their employees. A government decree (78/1993 V. 12.) allows expensing the costs of inter-town services only. This is unreasonable and, in our opinion, unconstitutional, especially when companies are allowed to expense tens of thousands of forints a month for the use of one car. On the other hand, reimbursement of local public transportation fares are regarded as personal income, and therefore, subject to income and social security tax. This is unfair, and economically and environmentally unjustified since it favours a means of transport that is more harmful to the environment against other, less polluting transportation services.
2. The current regulation on allowances in passenger transport (decree 287/1997 XII. 29.) discriminates users of local public transportation in favour of those using inter-town services. Users of public transport should be entitled to uniform allowances regardless of town boundaries.
3. Today, users of public transport aged over 65 and/or 70 are entitled to travel free of charge. A 90% allowance (instead of free travel) could encourage people to use public transport more rationally, give a more accurate picture on travel needs and produce at least a fraction of funds to achieve uniform fares and allowances.
4. Like agricultural farms, public transport companies should have the right to reclaim excise duties on the fuel consumed by vehicles travelling by schedule. Using public transportation is less harmful to the environment than travelling by cars, so this measure is more than justifiable.
5. Local public transport companies (and future regional transport alliances) should be given the authority to run parking lots and toll roads. Their income from those services could be directly invested in public transport.
6. We propose that allowances be granted only on condition that public transport companies meet the environmental requirements and standards set by law, and adjust their schedules with other transport companies to satisfy the travellers’ needs as well as environmental considerations. Local transportation should only be granted allowances if public transport is prioritised and traffic calming measures are introduced. (It is unreasonable to support public transport stuck in traffic jams.)

Public transport in and around Budapest needs overall, comprehensive improvement. The Budapest Public Transport Company (BKV), the Hungarian State Railway Company (MÁV) and inter-town bus services (Volánbusz) should work together closely and set up a transport alliance to improve their services both in Budapest and in its surroundings. It would require funds worth HUF 10 billion to be chiefly spent on improving service levels of the existing lines and making railway lines more capable of carrying suburban transport. The three companies could have access to the funds provided they make a firm commitment to set up the alliance (at least partially) by 2000. If they fail to meet their commitment, they should pay the amount back as described in the law on overdue tax obligations.

We understand that public transport needs improvement all over the country, still we propose that most of the investment should be devoted to improvements in Budapest and its surroundings. The reason is that 20% of all inhabitants of Hungary (or 25%, if we include commuters from other places) live here, and nearly 25% of the air pollution from vehicles is generated in Budapest, an extremely small area representing only 0.5% of the entire land of Hungary. (See Figures 15 and 16.)

Figure 15

Figure 16

Note: WHO has not set limit values for the concentration of particulates substances in the air because no limit can be defined below which the concentration of particulates is safe for human health. By Hungarian standards, even one molecule of some of these substances can cause cancer.

Suburban trains require special attention. In 1994, nearly 250,000 people in 150,000 motorcars crossed the boundaries of Budapest every day, and, although more up-to-date figures are not available, their number must be even higher today. Those cars are responsible for over 60% of the air pollution from cars in Budapest. This is especially sad, because along motorways and roads connecting Budapest and its surroundings, there are sufficient railway lines capable of moving people between their homes and work. (The only exception is one busy road on the Buda side where there is not a railway line.)

Budapest and its surroundings represent the area where environmental damage and traffic tensions can be moderated in the most cost efficient way. With the above policies, nearly 3 million people in and around Budapest could have better living conditions.

Further information and proposals about improving public transportation services in Budapest can be found in Appendix 10.

b) Improved Railway Transport Services

The Hungarian Railway Company, MÁV needs significant investment in maintenance and reconstruction. Promotion of combined means of transport is also urgently needed. Nearly HUF 400 billion is needed only for renewal of the existing tracks and rolling stock. This "internal debt" was caused mainly by the previous government’s fault: they ordered the railway passenger transport services, but did not pay for it. So MÁV paid the losses of passenger transport from the profits of freight transport. This practice must be abandoned. MÁV has already elaborated a scheme for improvement, which we also support.

Manufacturing of railway vehicles is an equally important issue. The government should also treat it accordingly. (We prepared a study on this topic and published in the appendices of last year’s proposals.)

We propose that an additional HUF 8 billion be spent from next year’s state budget to improve railway services in Hungary. Once this amount is available, the EU might be ready to grant Hungary another 8 billion or so. Neil Kinnock, EU Transport Commissioner spoke about such a possible aid, which would benefit both Hungary and the EU.

c) Crisis Management in North-eastern Hungary through Railway Transport

The western part of Hungary can unquestionably rely on its trade relations with EU countries. However, eastern regions of the country are lagging behind. They are in a disastrous situation, an economic crisis. Financial support is vital to make those regions capable of catching up with developed parts of Hungary and the EU. Partial refund of costs of using environmentally benign means of transport (such as railway and combined means) could be an efficient way of giving a boost to those regions and promoting the least polluting means of transport. (Actually, a similar technique was in use at the turn of the century in Transylvania to boost the economy.) The amount refunded could be the difference between the costs of road and railway transport of goods, which is approximately HUF 5 a freight ton-kilometre. Assuming that one million tons of goods are transported a year, and using an average distance of transport, the refund would cost the government HUF 1.5 billion. But the government could decrease inflation rate, economise on state subsidies to the railways as environmental pollution goes down and the railways get busy with carrying goods. As the need for railway transport increases in Hungary, EU countries can benefit from it by better involving railway companies there in the freight transport. (This technique meets EU requirements, so it could open up ways to have access to EU funds.) If it is appreciated and accepted by EU countries, this can be applied to transit of goods from Eastern European countries as well. This way, competitiveness of the region (i.e. eastern Hungary) could improve, whereas, by giving priority to road construction and road transport, costs of goods produced in the region would go up (among others as a result of paying large amounts of tolls) and put it in a less advantageous competitive position.

d) Better System of Logistics

Inadequate logistics (low service levels and uneven operations of interrelating systems) are one of the reasons of "overusing" any kind of transport. To avoid this, and to reduce the need for transport, as well as combat environmental pollution, the central and the local governments should provide sufficient assistance to improve logistics. Doing so, spectacular results can be expected in freight transport within town boundaries. International studies have found that with good systems of logistics in place, 30-50% of lorries and trucks can avoid densely populated inner areas of cities and towns. The number of vehicles drops by 40% while their utility rates may go up to 80% on average. Loading and unloading are reduced to the minimum. People may suffer less from diseases, and towns might become more attractive again.

e) Traffic Calming

It is especially important to help local governments in elaborating traffic calming programs as well as safe and pleasant conditions for pedestrians and cyclists in densely populated areas. Legal regulations demand local governments to do so (see Appendix 13), however, in reality, nearly nothing happens. The central government has the responsibility to help local communities. It should provide them with sufficient and high quality technical guidelines, introduce new technical requirements, supply information to the general public and give financial support for putting out tenders.

f) Equal Financial Treatment for Cyclists

Cyclists and pedestrians should be granted tax-free travel allowances – just like motorists are when they travel or walk to work. It is unreasonable and, supposedly, unconstitutional that a means of transport that is more harmful to the environment is favoured against other, less polluting transportation methods. A measure favouring cyclists and pedestrians could benefit the entire community in several ways: pollution would be reduced, motorcars would be less in number, and people could live a healthier way of life. The idea is quite feasible. In a town of England, for instance, this has proved to be a good incentive to persuade people to ride a bicycle instead of a car when travelling to work.

Employers should be given the right to purchase bicycles for their staff to use for going to work and exempted from paying personal income and social security taxes on those purchases. On the other hand, they should be given that right only on condition they make sure that safe storage facilities are established in or near their locations.

g) Use of Taxis

Using cabs is more beneficial both economically and environmentally than riding one’s own car. Using more cabs could reduce congestion, traffic jams and parking problems. Even public transport can benefit from the widespread use of taxis, especially at night when people think twice to choose public transport if they are not sure when they go back home and rather use their motorcars to be on the safe side. Therefore, using cabs should be given preferential treatment as it is the practice in several EU countries. The means of preferences are many; below are only some examples of the available options.

Public institutions may cut the number of their fleet of motorcars and use a portion of the money spared for travelling by cabs. This would also encourage entrepreneurs to start up their "taxi business".

Taxi drivers pay substantial amounts of taxes (excise duty, VAT, personal income tax, social security tax, local governmental taxes, etc.), which reduces their net revenues and income. The less income they earn, the fewer pensions they get when they are retired, whereas they find it hard to earn some extra money from driving at that age. So, let’s say, a five-percent share of their total tax payments could be transferred to their own pension account. It could serve a dual purpose. On the one hand, it could help old-age taxi drivers keep up their life standards, and on the other hand, encourage them to pay their taxes.

At the same time, potential taxi-drivers should meet strict requirements and standards when starting up their businesses. They should have the qualifications and skills to do their job in an environmentally, professionally and ethically acceptable manner.

4.7.4. Air Protection

Half of the population in Hungary live in areas where the air is polluted to some extent. Air quality needs to be improved by measures and means mentioned earlier in this document and proposed through various information channels.

4.7.5. Protection against Noise and Vibration

Noise has become one of the most severe pollutants over the last decades. The current document discusses a few of the means to combat noise pollution; several of them require direct state support (to establish natural or artificial noise barriers, for instance).

4.7.6. Integrated Waste Management

Nearly 104 million tons of waste are produced in Hungary a year. This represents a severe waste problem as well as waste of resources. People need to be encouraged to produce less garbage, and recycle, reutilize as many materials as possible.

4.7.7. Water and Soil Protection

The last decades have seen a significant deterioration of water quality both in terms of underground and surface waters. Only 57% of Hungarian inhabitants have sewers installed, which is a serious source of pollution, whereas 97% of them have access to public water supplies. A further source of pollution is that most of the sewage is not or not adequately treated before reaching water reserves. (Budapest and some big provincial towns are in a very unfavorable situation as far as waste water treatment is concerned.)

The quality of soil has also become poorer in most areas. To improve both water and soil quality, the government needs to provide direct financial support.

4.7.8. Environment Friendly Agriculture and Maintenance of Soil Nutrients

Technologically sophisticated farming methods are responsible for reduced biodiversity, degradation of soil, poor landscape and extensive use of chemicals entering, and thus endangering the food chain. The most important task today is to elaborate state-of-the-art, environmentally sound farming methods. Appendix 4 discusses our budget proposals in detail.

4.7.9. Natural Preservation; Protection, Improvement and Expansion of Forests and Green Areas

Act LIII of 1996 provides guidelines to fulfil the tasks listed in the National Nature Conservation Program. One of the most urgent tasks is to increase afforested areas to 20%, or 25% in the long run. Natural reserves or protected areas should cover 12% of the land of Hungary. Government funds are necessary to achieve the goals set in the Program.

Green areas of urban or populated areas should be protected and improved through indirect economic tools and adequate legislation.

4.7.10. Cleaning up Long-Term Environmental Damage and Damaged Areas

The government is responsible for removing all the harms and long-term environmental damage as well as rehabilitating damaged areas. The National Environmental Rehabilitation Program details the tasks to be carried out by the government.

4.8. Increased Support to Small and Medium Sized Enterprises

Small and medium-sized enterprises (SMS) are vital to develop and obtain competitive advantage in Hungary. It is an economic sector of crucial importance since it makes a 50% contribution to the GDP and provides nearly 70% of the jobs.

Small and medium-sized enterprises are granted HUF 3 billion from government funds in 1999, which is far less – even in nominal terms – than the HUF 4 billion the year before. At the same time, joint ventures operating in Hungary receive corporate tax allowances worth HUF 45.5 billion in 1999 – a significant increase from last year’s HUF 37.3 billion. (These figures include corporate tax only. Statistics are not available on other allowances, such as exemption from customs duties. This violates Hungarian legislation and EU requirements as well.)

The EU have implemented nearly 400 support schemes to give the required and tailor-made financial aid to SMS. It costs the Union over ECU 10 billion a year and even more for the individual member countries that subsidise their own businesses as well.

Research and development in SMS is in a primarily disadvantageous position. The current practice is that only large, foreign companies can have access to extraordinary state support for R&D.

We propose that direct and indirect support to large companies (mostly with foreign owners) are granted only if they meet strict pre-conditions. The actual amount of financial support should be reduced and adjusted so that small and medium-sized companies can have more subsidies if and when they meet the standards to be elaborated and introduced by the government. HUF 10 billion could be withdrawn from large companies to support smaller ones.

4.9. Subsidies to Pharmaceutical Research and Development

The domestic pharmaceutical industry is a major player in sustaining efficient operations of the social security system. The current price system offers allowances of around HUF 100 billion to be actually used. To keep up that ratio, the government should make its contribution to pharmaceutical research. Subsidies to the industry are not in conflict with EU regulations since these permit to cover over 70% of research needs by subsidies. A further advantage is that imports of pharmaceutical products, and subsequently prices in Hungary, would drop. Additionally, increasing exports of pharmaceuticals from Hungary could generate several hundreds of millions of dollars in a few years.

The pharmaceutical industry involves high intellectual value and considerable returns, therefore, it is responsible for much less environmental pollution than heavy industry, even after billions injected into the latter. The most efficient way to curb pollution caused by heavy industry or manufacturing is restructuring the economy. (Pollution from existing heavy chemical industry plants is hardly removable even after huge amounts of capital have been devoted to development.)

Pharmaceutical research should be granted at least HUF 2 billion a year, through which research quality could be improved and the number of experts employed in research could be increased. The domestic pharmaceutical industry would gain competitive advantage with growing volumes of exports and, at the same time, price cuts in imports, thus in the Hungarian market on the whole. The end result would be that social security could economise on its budget.

Impartial analyses of pharmaceutical products have shown that imports of USD 150 million can be replaced by Hungarian production. This is a major waste of resources since the prices of imported pharmaceuticals are three to four times higher than those of Hungarian production. Imports have major adverse impacts on the consumers, the industry and the economy:

• consumers and the social security pay HUF 20-30 billion more on imports than they would on domestic pharmaceuticals,
• domestic industry loses a market of around HUF 30 billion,
• the trade balance deficit increases by USD 150-200 million.

The remedy is extremely simple. Only pharmaceuticals of the lowest producer price (measured in units of the active agents) should be granted social security subsidies, as in several EU countries. In this way, corruption inherent in the current system can be avoided.

4.10. Medical Tourism

We propose that HUF 2 billion should be spent on improving services offered by medical tourism. Instead of reducing capacities and dismissing medical staff from hospitals and other institutions, Hungary should come to an agreement with EU countries and their social security funds about improving services. A programme is necessary to be launched to facilitate bilateral agreements with social security funds of EU countries, first Austria and Germany. (Hungarian medical doctors and other personnel are by far competitive since their average wages are around twenty times less than their counterparts’ in the West.) The agreements would prevent Hungarian medical staff from being forced to find jobs abroad or finding themselves without any job opportunity in Hungary. But, they would also benefit the EU and foreign patients since treatment in Hungary costs significantly less than it does in EU countries.

The social security system is going through a crisis even in EU countries as a result of the ever-increasing expenses. Being less expensive, medical service in Hungary could benefit the EU as well, whereas doctors and medical personnel in Hungary could find more jobs.