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The details of consolidation for towns with over 5000 inhabitants were set out in Arti cles 72–75 of Act CCIV of 2012 on the 2013 Central Budget. Pursuant to the Act on the Budget, the assumption did not apply to the prefinancing of grants paid from the central subsystem of public finances, grants directly awarded by the EU or provided by interna tional organisations, payment obligations stemming from the advance payment of VAT and other revenues constituting a debt, and payment obligations deriving from loans as sumed from a water utility association by a lo cal government affected by a grant. Pursuant to the Act on the Budget, the local govern ment had to pay to the state the amount of deposit or outstanding balance used as cover age or security expressly for the debt item af fected by the assumption, in proportion to the amount of debt item assumed and at most in the amount of this debt item.

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The Act on the Budget referred to before also defined the set of conditions that govern the benchmark amount of the assumption. One of the frequently used methods in the local government financing system is the cal culation of tax capacity, which is based on the “revenuegenerating” potential of local gov ernments in accordance with predefined cri teria. The calculation performed by the Min istry for National Economy is based on the local business tax base recorded and declared in the 2012 semiannual financial statements of local governments. 1.4 per cent of this was used to determine the average realisable rev enue from local business tax (calculating with 70 per cent of the maximum 2 per cent lo cal business tax rate) for every town, divided by the number of inhabitants as at 1 January 2012, which gives the tax capacity per capita.

After these calculations had been carried out, the towns were classified into various cat egories. The Act on the Budget defined four town and settlement categories. Then the per capita tax capacity data of the towns within each category were sorted in terms of size, and the data of the top 10 and bottom 10 per cent were filtered out. Using the remaining 80 per cent of the data, a simple arithmetic aver age was calculated to determine the adjusted average of each town category. Next, on the basis of the amount of debt assumption for each town, the per capita tax capacity of the given town was calculated with respect to the adjusted average of its town category.

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If the tax capacity of a local government af fected by assumption with respect to the ad justed average of its town category:

• was equal to or over 100 per cent, 40 per cent of its debt,


• was between 75 per cent and 100 per cent, 50 per cent of its debt,


• was between 50 per cent and 75 per cent, 60 per cent of its debt,


• was below 50 per cent, 70 per cent of its debt was used as the basis for debt as sumption by the state.

Calculated in Hungarian forint, the tax ca pacity category averages were as follows:

• towns with county rank, HUF 35,997,


• other towns with over 10 thousand inhab itants, HUF 23,550,


• other towns with between 5 and 10 thou sand inhabitants, HUF 16,049,


• settlements with less than 5 thousand in habitants, HUF 13,278.

The Minister of National Economy and the Minister of the Interior had the right to de termine an assumption ratio higher than the ratio set out in the Act on the Budget (40–70 per cent).