Case Watch: Europe’s Economic Crisis Comes to the ECHR

The European Court of Human Rights has found that the Hungarian government violated the property rights of dismissed civil servants, when it sought to impose taxes up to 98 percent on their severance payments. The ruling, issued on May 14, marks the first time the court has explicitly addressed a state’s argument that the economic crisis justified a policy that violated human rights.

The Hungarian parliament re-wrote the country’s Economic and Financial Act in 2010, using the state’s financial crisis as a justification to exert control over civil servants’ severance pay. Hungary’s constitutional court found the act to be unconstitutional because it was disproportionate and unjustified. But the governing right-wing coalition, which currently holds an absolute majority in parliament, responded by passing constitutional amendments that allowed retroactive taxation, and removed the court’s ability to review tax and budget legislation.

A former civil servant then complained to the Hungarian courts regarding the 98 percent tax imposed on almost half of her severance pay (the total tax burden on her severance was 52 percent, against a basic personal income tax rate of 16 percent). She argued that this level of taxation was considerably higher than that paid by others, and was being applied to funds she had collected before the act had even come into effect. Although the new constitutional amendments prevented the court from reviewing the act on tax or budget grounds, the constitutional court ruled that the amended bill’s retroactive nature violated human dignity and should be struck down. However, the Hungarian parliament persistently refused to comply with the court, maintaining the 98 percent tax rate on severance payments above 3.5m forints (approximately $15,500).  

The applicant brought the case before the ECHR in N.K.M. v. Hungary, arguing that the act violated her right to enjoy her property. The ECHR agreed with the applicant, holding that the tax on the applicant’s severance pay amounted to a deprivation of her right to peaceful enjoyment of property under Article 1 of Protocol 1 to the European Convention. The court overlooked the Hungarian government’s questionable methods of passing the law and still granted the authorities a wide discretion in tax matters. Nonetheless, the court found that the law was disproportionate because the applicant bore too much of a burden without having her individual circumstances assessed.

The ECHR ruling came against the background of rising concern over Hungary’s human rights record under the conservative Fidesz party. The European Parliament criticized the state of human rights in Hungary in July, adopting a report that highlighted concerns over the erosion of the powers of the judiciary and media freedom. Unlike the Council of Europe, which decided against opening a formal monitoring procedure on Hungary, the report recommended that an independent mechanism be set up to protect and monitor citizens’ rights, and that the European Parliament should take further measures if the government does not adequately respond to these concerns. 

The Venice Commission, another group within the Council of Europe comprised of former judges from the European Court of Human Rights, also issued a report in June stating that, among other things, the Hungarian Parliament is endangering the constitutional system of checks and balances and rule of law in Hungary. The European Commission has also previously expressed its dissatisfaction with Hungary’s use of tax hikes to offset EU fines.