Budapest receives judicial protection, avoids bankruptcy for now

In the latest chapter of the financial dispute between the Hungarian government and Budapest, the court has upheld the Hungarian capital's request for immediate judicial protection. Based on the decision, the Budapest Metropolitan Court has prohibited the State Treasury from submitting collection orders for solidarity contributions until the conclusion of the litigation, the Budapest Metropolitan Court has announced.

At the same time, it ruled that the Hungarian State Treasury, as the defendant, must – along with interest – repay the HUF 10.2 billion collected from the capital's account in May.

According to the court's decision, “if the collection order were enforced, the plaintiff, which is in a special situation among local governments and is responsible for providing services to several million residents as part of its public duties, would be unable to perform these obligations due to the loss of its liquidity.” Based on the principle of proportionality, the court concluded that the failure to provide immediate judicial protection would cause a more serious disadvantage than if such protection were granted.

Shortly after the official announcement, mayor Karácsony addressed the residents of Budapest in a video message and said that “although the capital's financial situation is critical, we have now gained four months to sort things out. In the meantime, Budapest's public services are safe.”

Mayor Gergely Karácsony requested immediate judicial protection from the court in May so that the state could not deduct the solidarity contribution from their accounts. (We have previously detailed some of the background to the financial disputes of the leadership of Budapest and the Hungarian government in this article.) According to Karácsony, there are HUF 50 billion at stake, and if they do not receive judicial protection, the city will no longer be able to finance its own public services. They hope that by autumn – the deadline until which they requested protection – their legal disputes with the government will be settled and the revenue from business tax will also arrive. Due to the deductions, they have already fallen behind on payments totaling 9 billion forints to three Budapest companies.

A few days later, at an extraordinary press conference, Karácsony announced that the State Treasury had, under political instructions and, in his opinion, illegally, deducted HUF 10,2 billion, as a further installment of the HUF 89 billion solidarity tax imposed on the capital, from Budapest's account.

As a way of drawing the attention of the city's residents to the situation, public transportation came to a halt for 10 minutes, which Fidesz claimed was illegal. This was not a strike, but trade unions have already indicated that if Budapest decides to save money on BKK, then a strike cannot be ruled out.

Although the government's position is that the withdrawn amounts are not excessive and that Budapest must also contribute to the common good in the country's difficult situation, it was recently announced that they will sit down for talks with the capital. On behalf of the government, Gergely Gulyás, Minister of the Prime Minister's Office, and Csaba Latorcai, Deputy Minister of Public Administration and Regional Development, were the ones who held talks with Karácsony and his colleagues.

At last week's meeting they agreed that the insolvency of the municipality and its companies providing public services must be avoided. As stated, the government is prepared to help with this if necessary, “provided that it receives a comprehensive picture of the municipality's management of finances, which the capital has said will be provided in full.”