Péter Márki-Zay’s policy on overhead would drastically increase the burden of Hungarian families

In 2013, the right-wing government in Hungary launched a program of reducing overhead costs to protect household consumers from market price changes. Therefore, families are currently not facing the challenges posed by the European energy crisis and rising prices. However, Péter Márki-Zay, continuing the pre-2010 energy policy of left-wing parties, would abolish administered pricing and expose families to current market price fluctuations. As a continuation of its analysis in October, Századvég estimated how much increase in expenditures would have been caused in November for Hungarian households by Péter Márki-Zay’s proposal on market pricing.

The stock market price of energy continued to rise in November. So, if household tariffs had been set by service providers on the basis thereof, households would have had to face a significant, almost fourfold increase in expenditure. While under the current regulations, an average Hungarian household spends HUF 22,000 on its monthly electricity and natural gas bills, with market pricing it would have exceeded HUF 86,000.
 

As a result of the price increase, the share of overhead costs in total household expenditure would have significantly increased, from 9 percent to 33 percent, so that families would have been able to spend less on other products (such as food, education, entertainment) or savings.
 

As electricity and natural gas costs currently account for the highest share of total expenditure in the poorest households, Péter Márki-Zay’s policy would be the biggest challenge to these families. In the figure below, the Hungarian population is divided into five equal groups based on per capita income. The average monthly net income per capita of the poorest category is HUF 54,000, and that of the richest is HUF 254,000. Under the current administered pricing, the poorest families spend 12 percent of their spending and the wealthiest 7 percent on gas and electricity. With the introduction of market prices, the rates would have risen to 45 and 28 percent, i.e., almost half of the expenditure of the poorest households and more than a quarter of that of the wealthiest households would have had to be spent on overhead costs.
 

A drastic increase in prices would have a dramatic effect on energy poverty. In Hungary, due to the reduction in overhead costs, the proportion of households that could not heat their homes sufficiently decreased from 15 percent to 4.2 percent between 2012 and 2020. This is significantly ahead of the EU average of 8.2 percent. The price increase caused by Márki-Zay’s policy would increase the proportion of people with heating difficulties to 18.5 percent, meaning that the number of affected households would increase from the current 172,000 to 758,000. Thus, the proposal would push more than 1.3 million people into energy poverty.
 

Contrary to left-wing criticism, the level of household energy consumption is not primarily influenced by income but by the number of people living in a household. This is also clearly shown in the current consumption structure: a family of four consumes on average 80 percent more than a one-person household. The difference is two and a half times for a multi-generational family of eight. It also follows that the introduction of market prices and the resulting increase in prices would hit large families hardest.
 

While the current overhead bill of HUF 16,000 would have increased by HUF 45,000 to a total of HUF 61,000 in the case of a single person, the rate of increase would have exceeded HUF 80,000 for a family of four and HUF 110,000 for a family of eight. In the case of the latter, this would mean that the share of overhead costs in total expenditure would have risen from 13 percent to 50 percent, i.e., a multi-generational large family would have been forced to spend half of its expenditure on energy bills.

 

In order to determine the tariffs calculated on the basis of market prices, the item of „energy charge” included in the components of electricity and natural gas tariffs in households, which was published by Eurostat in the first half of 2021, was adjusted based on the average prices of the Hungarian Power Exchange and CEEGEX (Central Eastern European Gas Exchange) in October. With the introduction of new pricing – due to the increase in product fees – the rate of VAT could also change, but this was not taken into account. For the estimation, we assumed an exchange rate of HUF 359 to EUR 1 based on the average data of the Magyar Nemzeti Bank. The breakdown of household expenditure by income and living together was carried out on the basis of the latest available Household Budget and Living Conditions Survey of 2019 conducted by the Central Statistical Office.