In December 1996, the Hungarian Parliament provided a new avenue to strengthen civil society by enabling taxpayers to support an NGO with 1 per cent of their personal income tax. A study of the first three years of the scheme suggests it has had a significant impact. However, though most Hungarians know about the scheme, so far only half have chosen to make use of it.
The 1 per cent provision is very well known in Hungary: 94 per cent of the adult population have heard of it. Fewer people (80 per cent) realize that since 1998 taxpayers can give another 1 per cent of their personal income tax to churches.
In 1997, the 1 per cent designation accounted for 4 per cent of the increase in non-profit revenues and just over 3 per cent of total government funding. There was a net gain to NGOs as both overall government support and private giving continued to grow.
The 1 per cent scheme made the system of government funding slightly more equitable and significantly more democratic. Through it government support became available for a large number of small grassroots organizations which had not had access to these funds before. In 1997, 16 per cent of designations went to small NGOs and 50 per cent to medium-sized organizations. The corresponding figures for other government support were 1 per cent and 4 per cent, with the lion's share of 95 per cent going to large NGOs.
But what is really unique about the 1 per cent scheme is the opportunity for individuals to donate public money. The cost of supporting charities in this way is practically nil. The fact that around half of the population do not make a designation declaration clearly indicates that cost is not the decisive factor in charitable behaviour. NGOs have failed to significantly increase the number of designations since 1997 largely because appeals are rarely part of a carefully thought out, sophisticated fundraising strategy that involves building solid relationships between citizens and NGOs.
The true value of the 1 per cent designations is higher than their economic value. Taxpayers' moral support enhances NGOs' growing prestige and legitimacy, which are just as important to their viability as their financial assets.
1 The empirical findings summarized here are mainly the results of a research project which was designed by Ágnes Vajda and supported by the Aspen Institute Nonprofit Sector Research Fund.
Éva Kuti is a researcher of the non-profit sector and head of the Section on Voluntary Sector Statistics in the Central Statistical Office in Hungary. She can be contacted by email at Eva.Kuti@office.ksh.hu First published in Alliance, Vol. 6, No. 3, September 2001. See www.allavida.org/alliance