Salary cap

On 8 June 2010 Hungarian Prime Minister Viktor Orbán announced an action plan containing 29 measures to establish a balanced budget. One of these measures is the implementation of a HUF 2 million monthly wage ceiling in the public sector. This is equal to ten times the average gross monthly salary of employees in the national economy.

The ECB received a request on 1 July from the Hungarian Ministry of the National Economy for an opinion on a draft law amending, inter alia, the Law on the National Bank of Hungary (NBH).

According to the explanatory memorandum attached to the draft law, the proposed measure would allow a more performance-based and equitable income distribution in the public sector and would strengthen the public administration’s efficiency.

According to the draft law, the total salary of the NBH’s Governor in a given year (András Simor’s mandate expires in 2013) will be the total salary established for the Governor for the preceding year, increased by the increment calculated on the basis of the consumer price index expected for the current year, as contained in the convergence programme submitted to the Commission of the European Union in the preceding year.

The Deputy Governors, the members of the Monetary Council and the Supervisory Board are also affected by the draft law, since their salary is based on the Governor's salary. Against this background, the proposed changes result in a decrease of about 75%, compared to the Governor’s present salary, and accordingly the proposed cut in salary would also result in a decrease in the salary of the Deputy Governors, as well as the members of MPC and Supervisory Board.

Consulting, hellooo?!

On 1 July, Hungary requested the ECB’s opinion on the draft law as soon as possible. Parliament expects to adopt the draft law before 19 July when the spring session of the parliamentary legislative process ends. Once adopted by the Parliament, the relevant provisions of the draft law will enter into force on the eighth day following its publication. Moreover, no explicit time limit for submission of the opinion has been set. Since the date of receipt of the consultation request, further steps towards the adoption of the draft law have been taken in the Hungarian Parliament.

Among general observations the ECB reminded that "in cases of particular urgency that do not allow for a normal consultation period, the consulting authority may indicate urgency in the consultation request and ask for a shorter deadline for the ECB’s opinion to be adopted."

It emphasised, though that "even in such cases a minimum one-month deadline applies [...] and the consultation should take place at a point in the legislative process which affords the ECB sufficient time to examine the draft legislative provisions and to adopt its opinion in all required language versions, and which also enables the relevant national authorities to take the ECB’s opinion into consideration before the provisions are adopted."

While in the event of extreme urgency, the time limit of one month may be reduced, the ECB considers that the justification provided by Hungary’s consulting authority cannot be considered as a case of extreme urgency.

"The ECB reiterates its position that even cases of particular urgency do not relieve national authorities from their duty to consult the ECB and to allow sufficient time to take into account its views [...]."

"Any substantive amendments to the draft law have to be submitted to the ECB to allow it to adopt its opinion on the most recent text," the ECB said, adding that with respect to the present consultation, the process of adoption of the draft law should have been suspended.

"The ECB’s comments on the provisions on which it was consulted do not eliminate the breach of the obligation to consult it. The ECB would appreciate the Ministry for the National Economy giving due consideration to honouring its obligation to consult the ECB in the future."

There’s more

The ECB understands that the draft law amends several legal acts including the Law on the NBH. This opinion only covers Article 95 of the draft law that the consulting authority has submitted for consultation.

"The ECB also advises that this Opinion is without prejudice to any other ECB opinions concerning the legal acts affected by the draft law and falling under the ECB’s competence. The ECB expects to be consulted also on such matters."

Central bank independence

"When a Statute of a national central bank (NCB) (in this case the Law on the MNB) is amended, the amending law should ensure that central bank independence guaranteed by Article 130 of the Treaty and Article 7 and Article 14.2 of the Statute of the ESCB and the ECB (hereinafter the 'Statute of the ESCB’) is respected," the ECB said.

Financial independence of the NCB and the personal independence of the members of the NCB’s decision-making bodies "must be ensured," it added.

"Member States may not impair an NCB’s ability to employ and retain the qualified staff necessary for the NCB to perform its tasks independently [...] and an NCB may not be put into a position where it has limited or no control over its staff, or where the government of a Member State is in a position to influence the NCB’s policy on staff matters," the ECB said.

Conclusion

"[...] the Hungarian authorities have an obligation to ensure that any amendment to the legislative provisions on the remuneration of the NBH’s staff is decided in cooperation with the NBH, taking due account of the NBH’s views."

"For these reasons the process for adoption of the draft law should ensure the involvement of the NBH and the draft law should be amended to comply with the principle of central bank independence," the ECB opinion, signed by President Jean-Claude Trichet, said.

Based on the ECB’s opinion, if parliament approved the draft law in its current form, it would infringe EU law and the case would end up at the European Court."

Source: Portfolio Online Financial Journal