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Financing of Churches

Financial contribution

“The assets of churches (…) shall be composed primarily of the donations and other contributions…” (Act CCVI/2011. §19/A.(1)). Churches are free to raise funds. Public authorities are not entitled to (...)

“The assets of churches (…) shall be composed primarily of the donations and other contributions…” (Act CCVI/2011. §19/A.(1)). Churches are free to raise funds. Public authorities are not entitled to get any kind of information on these revenues, that is churches manage and administer these funds free. Local church communities are usually able to maintain themselves from the donations of the community members and rely on the financial assistance of their diocese/sister churches only in special cases, like a construction or a renovation project. Besides donations of the faithful, some local communities engage into “business” to a limited extent. For example church towers are often rented to mobile phone companies to run antennas, many rural parishes own cemeteries and newly a number of urban parishes open crypts as burial places of urns.
Besides donations and contributions from members, churches receive public subsidies on various titles.

1. Direct funding to religious communities

1.1. Restitution of nationalised property and compensation for expropriations

Mainstream religious communities – especially the Catholic Church – used to own vast properties, especially land and forest, until 1945. Endowments used to secure the operation of ecclesiastical institutions, on the one hand, patronships, on the other hand, played a special role in Hungary: even between World War I and II about 2/3 of the Catholic parishes had a patron (a landowner, an ecclesiastical entity or often an urban municipality or a company) covering the expenses of the church building and the clergy.
Communist takeover after World War II has brought a radical change: almost all church property was confiscated, education and health care nationalised, practically only church and parish buildings and a very limited number of church institutions remained in the hands of churches. The churches maintained their institutions during the decades of socialism primarily from donations of the faithful and to a smaller extent from government aid. In the second half of this period, considerable foreign financial help completed these resources.
With the collapse of the communist regime it became evident that churches are in need of some kind of public assistance to be able to function, but the state control has to be overcome once and for all. Autonomy became a top concern in more ways: churches had to gain autonomy from the state, on the one hand, on the other hand, they had to become able to function and fulfil activities they had been deprived of for decades. The state had to fulfil its responsibility to enable the operation of churches as this was regarded as a condition of religious freedom, but it was keen on not getting involved with their internal affairs.
In Hungary, there was no re-privatisation after the transition. Nationalisation was regarded to be unjust, harmful and also illegal, but not invalid. The economic situation which the “real socialism” left behind, however, did not enable a full restitution or a full compensation. Private individuals who lost their property got partial compensation receiving compensation vouchers that they could use in the course of the privatisation process. Churches were the only juridical persons compensated on the basis of a special law. Other legal persons – associations, trade unions, political parties – did not have the same continuity as churches, as they were usually dissolved, many of them, however, received some property (like office space) at the early period of the democratic transition.
Based upon the Act on the Settlement of Ownership of Former Real Properties of the Churches of 1991 churches could reclaim buildings (together with the plot of the building) expropriated after 1948 and originally used for specific purposes in so far as these properties were – at the time the Act came into force – the property of the state or a local municipality. Restitution was meant to be partial as the purposes defined by the Act did not cover economic utilisation (e.g. agricultural properties, land, vineyards, forests, apartment houses, press were excluded), but a wide range of religious and non-profit activities like religious life, education, culture, health care institutions and houses of religious orders. The building reclaimed was to be used for one of these purposes, too, but not necessarily for the same purpose as before nationalisation (eventually a convent of a religious order may be turned into a dormitory of university students). The restitution process took two decades (1991-2011). About 3,000 buildings were restituted to 13 denominations.
Beginning in 1998 (after an agreement with the Holy See) the possibility was open to religious communities to turn the value of non-restituted property into a virtual fund that grants a sum every year to the church concerned. Six denominations made use of this possibility giving up about 1,500 claims for an annuity. This way compensation is a source of income for some denominations that can be administered freely.

2.2 The tax assignment system

Since 1998 a major way of public funding is a tax assignment system, as income taxpayers got the right to assign 1% of their tax to a religious community of their choice or to alternative public funds. Since the introduction of a multi-tier system for religious communities, the possibility has been reserved to recognised churches. As the Constitutional Court has found this distinction discriminative (Decision 17/2017. (VII. 18.) AB) the possibility is now available to all religious communities. For recognised and registered churches, the state budget supplements the sum that has been offered to their religious communities up to 1% of all income tax paid to the state.

Funds assigned to churches in a year (on the income of the previous year) are transferred to churches in the year following the assignments. Funds raised in the tax assignment system are freely administered by the respective churches, without any kind of public control.

2. Indirect Financing of Religious Communities

2. 1 Public funds for religious activities

Churches are exempt of various taxes and fees. For example, ecclesiastical legal entities do not have to pay local taxes and fees when purchasing or inheriting real estate or become parties of civil or administrative procedures. The stipend given by private individuals to clergy for religious services is free of tax.

The state contributes to some church activities, like the reconstruction projects of architectural heritage or the expenses of major events (like the International Eucharistic Congress scheduled for September 2021 in Budapest). These subsidies have reached a significant amount in course of the last decade.

Since 2002, churches receive a special fund to contribute to the salary of their staff (clergy or other full-time church employees) serving and living in rural settlements of fewer than 5,000 inhabitants. With this contribution the government acknowledges that churches play a vital role in keeping the rural areas alive. The clergy does not receive state salaries, but the that receives a public fund to assist their staff who – besides their genuine religious duties – also contribute to the general welfare of villages.

Religious instruction is sponsored by the state. The churches have to submit the number of the religion classes they run to receive a per class fund. Teachers are paid by their church, but the churches receive a subsidy to cover the salaries.

Institutions providing higher education in theology are maintained by the relevant religious communities. The religious community maintaining the institution can enter an agreement with the government to get the training funded (in the case of university-level training, the funding equals the funding of the teacher training quota at arts faculties).

In Hungary army chaplains qualify as officers, prison chaplains of mainstream denominations as public employees. This way the personnel of the four “mainstream” religious communities (Catholics, Calvinists, Lutherans and Jews) at the army and the prisons are directly paid by state organs. Ministers of other denominations have free access to military and penitentiary facilities, but receive no public salaries.

2.2 Funding for public activities carried out by churches

Education, health and social care are considered as state duties. Religious communities are free to perform any public activity that is not reserved to the state. If a religious entity provides public services on demand of the citizens, it is entitled to the same subsidy that the state is providing for public institutions. Church-run museums, archives and libraries may receive public funding if they fulfil certain criteria. Neither of these subsidies is considered as funding of religion or core religious activities. Social and health care are important fields of the public activity of churches, however, the most significant is the presence of churches in the education. Pursuant to the relevant provisions of law, churches performing public activities (maintaining schools or providing social care) are granted by the budget normative support equal to the support granted to public institutions for the same purpose. The principle of equal funding was also reinforced by the agreement with the Holy See concluded in 1997 as well as the agreements concluded between the government and the mainstream Protestant denominations in 1998. The law on Church finances of the year 1997 also restates the principle. It is important to note that these subsidies are due to the Church maintaining the institution and not directly to the institution itself.

D 11 February 2021    ABalázs Schanda

The funding model for faiths: from 1990 to 2011, via the signing of the Agreement with the Holy See in 1997

1. From 1990 to 1996
The Constitution of the Hungarian People’s Republic promulgated on 20 August 1949 established the separation of church and state; it was implemented gradually as a result of (...)

1. From 1990 to 1996

The Constitution of the Hungarian People’s Republic promulgated on 20 August 1949 established the separation of church and state; it was implemented gradually as a result of anti-clerical and anti-religious political interventions and laws establishing the state monopoly over schools, the progressive nationalisation of church establishments and the dissolution of religious orders etc. After the transition to democracy in 1989, the funding structure for faiths came to be defined by Law IV of 1990, the Law on Freedom of Conscience and Religion and the Churches (LCR); its scope was subsequently increased by Law XXXII of 1991. With the separation of church and state being confirmed, the Hungarian State does, however, recognise that the churches are important social actors and creators of cohesion which, in addition to their spiritual activities, contribute to the good of the country in cultural, educational, social etc. fields, and this justifies the introduction of an adequate system of funding. Since 1990, the legislator has allowed churches to provide public services in various domains: education or sport, for example. For this purpose, they can create their own establishments or else perform assignments (such as catechesis) in public establishments. Church funding is made up of the following items: the churches’ own income, perhaps from their principal activities or their financial/business activities and state subsidies.
This system of funding still harboured uncertainties, as § 19 of the LCR had left Parliament free to subsidise (or not) other church activities within the framework of the annual finance law, on a case-by-case basis according to the faith and in respect of concrete goals. In the 1991 finance law, eight sections determined subsidies allocated to faiths, whereas in 1997 there were 46 sections. Each year, lawmakers have made available resources for the operation of basic church institutions and their investments etc. In addition, one constant should be noted: subsidies for public collections (museums, libraries) managed by churches. Subsidies for faiths have since 1991 concerned both church activities serving the common good and their purely religious activities.
This budget has seen clear increases since 1991 due to the emergence of a new financial item, namely compensation paid to churches for property assets confiscated after 1948. If the LCR has provided a legal framework for faiths so that they can contribute to serving society, they could not assume this burden without property or resources. A law was then passed which within ten years was to return to them for their use land assets which were under the ownership of state or local authorities when the law came into force. As regards renovation of property assets returned to churches in a run-down state, the latter were granted new subsidies, which have year on year been the subject of negotiations between the government in power and representatives from the faiths, the system for funding faiths often being subject to the political bargaining of the moment.

2. The agreement with the Vatican and the new governmental agreements

1997 marks a turning point in the funding structure. Not being able to achieve the return/reimbursement of confiscated goods within ten years, the representatives of the faiths proposed to extend the deadline until 2011. They also suggested the creation of a new model of reimbursement, by transforming the value of the land assets not returned into a capital on which churches would be able to benefit from annual interest. In 1996, the government introduced with Law CXXVI a system of funding allowing taxpayers to pay one percent of personal income tax (IR) for the benefit of a church, a faith or an organisation of public interest. The churches protested against this law, since lawmakers thereby put faiths “into competition” with other civil organisations.
The turning point came with the Agreement, signed between the Holy See and Hungary in the Vatican on 20 June 1997, on “funding public service activities and other purely religious activities performed in Hungary by the Catholic Church, as well as in several property-related areas”.
In 9 February 1990, an agreement was signed between Hungary and the Holy See restoring diplomatic relations; it stated that the issues of concern to both partners would be resolved in the future by mutual agreement. Thus, the Agreement of 1997 was drawn up. This agreement between the Vatican and Hungary does not regulate in a global way the relation between the partners, but focuses on the issue of funding the Catholic Church; in this precise case, it can be compared to a concordat.
This text sets out the rules for funding activities performed by the Hungarian Catholic Church, whether in public service or the purely religious domain. It lists guarantees so that private individuals can donate part of their income tax to the church. This agreement plays a major part in the implementation of a “Hungarian” model of relations between the state and faiths for two reasons. First of all, more detailed legislation on faiths was developed in parallel to preparing this concordat; these two texts were harmonised. Furthermore, the agreement with the Vatican served as a model for other agreements signed with three “historical churches”: the Reformed Church, the Lutheran Church and the Alliance of Jewish Communities in Hungary, then subsequently with the Baptist Church and the Serbian Orthodox Diocese. These agreements were published in the form of a decree and do not possess true legal character. They may be regarded as contracts of a political kind or, according to Jurist Balazs Schanda, as “common law agreements”. As for their content, there is a difference when compared to the agreement with the Vatican, since the latter deals with issues of a primarily financial character, while the others have a global character and set out general principles of cooperation between the state and the church concerned. All these texts recognise the principle of separation of church and state, but it is a benevolent separation which respects religious freedom and freedom of religions, supports their activities and is open to cooperation in the general interest, in particular in the area of public services.
Broadly speaking, the agreements on church funding between the Hungarian State and faiths include the following principles: a) church establishments providing public services must receive the same subsidies as establishments that depend on the state or local authorities; b) churches also receive subsidies in the areas of education, health etc.; c) the partners fix the funding rules based on reimbursements of former confiscated goods and on the basis of one percent of IR and one-off, exceptional subsidies.

3. Law CXXIV of 1997 on the funding of faiths

Parallel to the preparation of the concordat, the law on the funding of faiths was drawn up. Law CXXIV of 1997 transposes into Hungarian legislation the principal elements of bilateral agreements between the Hungarian State and the faiths. At the latter’s request, lawmakers decided upon a second amount of one percent of IR that was able to be assigned to churches. The first one percent can be allotted or to one of the officially registered churches or to a specific state fund. The second one percent can be assigned to an association or a secular or religious NGO. The state provides a contribution of the same value to institutions providing a public service, irrespective of whether they depend on the state, local/regional authorities or the churches.
The law on the funding of faiths has been amended several times, but it is Law CXXXIII of 2000 (finance law for the budgetary year) which brought about a global change. Several new sections were introduced (e.g. under certain conditions, the churches have henceforth the right to receive tax-deductible donations; the state contributes to the budget of the catechesis taking place outside state education). Today, the fundamental principles of the legal status of churches as well as certain principles concerning their funding are contained in the law on religious freedom and on the legal status of the churches, Law CCVI of 2011. The rules for funding faiths continue to be fixed by Law CXXIV of 1997 and bilateral agreements signed between the state and churches. The National Assembly decides the annual amount of financial resources allocated to churches by the finance law for the budgetary year.
The current structure of the funding of faiths is then made up of the following elements: a) churches’ own revenues from religious activities, non-financial/non-business activities and financial/business activities; b) subsidies received from the state budget - subsidies for activities performed in the public sphere and the complementary subsidy (part of the IR of private individuals), interest arising from compensation for confiscated church assets and other endowments defined each year by the finance law. Also, faiths can benefit from other subsidies, originating from the European Union or other programmes of international funding.

See the summary (pp. 13-25, in English) of the works of Bernadette Szilágyi whose research relates to the issue of church funding.

D 11 February 2015    ARozalia Horvath

CNRS Unistra Dres Gsrl

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