In 1989, the Right of Association Act was passed in accordance with the International Covenant on Civil and Political Rights. It states that the right of association is a fundamental freedom to which everyone is entitled and which the country recognizes, while ensuring its free exercise. Since that time, a once loose regulatory framework has developed into a detailed set of legal and economic regulations.
Some important dates and laws:
1997: the milestone 1% law was introduced in Hungary, which gives taxpayers the opportunity to transfer 1% of their personal income tax to a charity of their choice. The 1% law was meant to encourage active citizenship as well as contribute to the revenues of non profit organizations. In it’s first year, the 1% scheme doubled the number of civil organizations receiving support from the state budget (10).
1998: Non profit organizations could apply for public benefit status, which carries with it a series of tax preferences. In order to obtain this status, organizations must meet specific criteria and be registered as such. According to the most recent data, 54% of NGOs are registered as Public Benefit Organizations (PBOs) (15).
2004: the National Civil Fund (NCF) was established to strengthen civil society, help civil organizations take an active role in social life and promote partnership between government and civil society. Under the NCF, the government matches the exact amount of funds designated through the 1% system. Civil society leaders sit on the NCF Council and Boards and are therefore directly involved in distributing the funds. At least 60% of NCF resources must be used to cover NGOs’ operational costs, thereby “facilitat[ing] the institutionalisation and professionalisation of civil society organisations” (10).
The creation of the NCF reflected a governmental commitment to support civil society and it’s intention to collaborate with contribute to the development of the non profit sector (as also outlined in the 2002 Strategy Paper on Civil Society). Indeed, the NCF acts as a mechanism for funding important areas fundamental to the development of the sector (i.e. research, training, publications, promotion, general operation) (16). Nevertheless, the NCF Board and Councils have been harshly criticized for being biased in their decision-making and failing to represent the voluntary sector as a whole (rather than their individual organizations.
Tax laws in Hungary, although in part favorable to NGOs and PBOs (i.e. exemption from corporate income tax), severely threaten their sustainability. The exorbitantly high payroll taxes, which represent a huge obstacle to human resource development and may be one of the reasons behind the low employment rate in the third sector.
With the onset of the financial crisis in Hungary, NGOs have seen their legal space shrinking. Government appears to be “increasing bureaucratic requirements in order to create way s to reject funding for NGO projects and reduce the budget. In 2009, the government reduced the tax benefits afforded to PBOS and potential donors and introduced new restrictive measure regarding the 1% law.
