Hungary is the poorest country in the European Union—at least, according to the country’s left-liberal media outlets. Their claim appears to be supported by the latest Eurostat data. Or so it seems. There’s just one small problem: it’s not true.
The indicator they use to support their argument is called Actual Individual Consumption (AIC). This metric measures the total value of household final consumption expenditure, the final consumption expenditure of non-profit institutions serving households, and government spending on individual consumption goods and services.
In theory, AIC is a useful indicator for comparing consumption levels across countries. The idea is that if a country’s AIC is twice as high, its actual consumption is also roughly twice as high. But AIC was never designed to measure wealth. And even the figures that could give us a better understanding of material well-being are often ambiguous and frequently misinterpreted.
Wrong Measure
My biggest concern is with how the AIC figure is interpreted. In Hungary, low values are often viewed as a sign of poverty. But consumption and material wealth are not perfectly correlated. Many wealthy individuals live moderately, saving a large portion of their income. Conversely, many people with low incomes live beyond their means.
While there is certainly some correlation between consumption and wealth, factors like savings and debt make the relationship more complex. Moreover, there are far better indicators of material well-being than consumption alone—such as earnings, savings, or net wealth.
It’s Not Real
Although there are purchasing power parity (PPP)-adjusted AIC figures—which, in theory, correct for price level differences between countries—in practice, this is an almost impossible task. On the one hand, certain services are free in some countries (such as most forms of education in Hungary). On the other hand, items that are significantly cheaper in a country (like household electricity and gas in Hungary) tend to carry less weight in the Consumer Price Index (CPI) and thus have a reduced impact on the PPP adjustment.
‘While there is certainly some correlation between consumption and wealth, factors like savings and debt make the relationship more complex’
The calculation method behind the AIC figure also raises serious concerns. As anyone can see, the smallest value Eurostat uses is 100, which means a single rounding error could amount to as much as 50 units. Since the index covers more than 20 items, the cumulative margin of error could reach up to 1,000. This implies that Hungary could potentially rank five places higher on the final list—purely due to statistical rounding.
Fish and Bread
Eurostat’s headline AIC figure in ‘Purchasing Power Parities (PPPs), Price Level Indices, and Real Expenditures for ESA 2010 Aggregates’ appears conclusive: Hungarians have the lowest level of consumption in the entire European Union. According to the data, the average citizen of Luxembourg consumes almost exactly twice as much as the average Hungarian. But upon closer inspection, this bold statement begins to crumble.
The first curious item in the breakdown of the headline AIC number is fish consumption. According to Eurostat’s data, Hungarians appear to abstain almost entirely from this aquatic creature. This is clearly inaccurate, as carp, catfish, perch, salmon, and hake are all integral parts of Hungarian cuisine.
The figures for bread and cereal consumption are equally suspect. The data suggest that Romanians are the highest consumers of these products—buying 30 per cent more than the second-place Dutch, nearly twice as much as citizens of Luxembourg, Belgium, or Austria, and three times as much as Hungarians, Danes, and Czechs. These figures strongly suggest that some components of Hungary’s AIC data are severely underestimated.
We Do Not Rock
Another reason for Hungary’s low AIC figure is quite simple: we are not rock stars. Our consumption of alcoholic beverages, tobacco, and narcotics is extremely low. A decent citizen of Luxembourg consumes more than five times as much of these substances as the average Hungarian—and 21.5 times more than a ‘poor’ Albanian.
Looking at alcohol alone, the data suggests that Albanians are completely abstinent, while the average person in Luxembourg drinks three times as much as a Hungarian. Citizens of the smallest Benelux country are also heavy smokers, consuming seven times more tobacco than Hungarians—and 35 times more than the Irish. It’s difficult to believe that these figures are even remotely aligned with reality.
The narcotics figures are even more puzzling. In several countries—including Montenegro, Serbia, Bulgaria, Luxembourg, Bosnia and Herzegovina, and Türkiye—reported consumption is actually negative. Either everything we know about measuring consumption is wrong, or these numbers are completely disconnected from real-life behaviour.
But even if the numbers were accurate, one must ask: Is high consumption of alcohol, tobacco, and drugs really something Hungary should aspire to? And this leads us to another fundamental weakness of the AIC indicator: it assumes that all consumption is inherently good.
Cold and Dark?
One of the biggest reasons for Hungary’s so-called ‘poverty’ is our extremely low household energy bills. Most Hungarians are paying roughly the same amount for gas and electricity as they did ten years ago. This is a significant benefit for the average family, as it allows them to spend more on other goods and services. However, within the AIC framework, this is paradoxically interpreted as a sign of a lower standard of living.
In Germany, people pay four times more for the same amount of electricity as those in Hungary, and in Sweden, gas prices are nearly fourteen times higher than in Hungary. This is the main reason why housing-related consumption—covering water, electricity, gas, and other fuels—appears to be 50 per cent higher in Austria, Finland, Poland, Germany, Italy, and Croatia compared to Hungary.
If we were to pay as much as Austrians do for utilities, our AIC figure would be higher than that of Croatia, Slovakia, Latvia, Estonia, and Bulgaria. But would that mean we had a higher standard of living? Certainly not. It would simply mean we could save less or would be forced to borrow more.
Health for Money?
The health component of the AIC is also highly questionable. According to the data, the European nation spending the most in this category is Romania. But do Romanians visit doctors, receive treatment, or stay in hospitals 60 per cent more often than Hungarians—and more than twice as often as Greeks? I don’t think so. Yet their AIC figure is that much higher.
Is this high figure good news for Romanians? Not at all. The country suffers from an underfunded and inefficient healthcare system, prompting many citizens to bypass the public sector in favour of private providers or to make direct payments for faster or better treatment. Hungary, by contrast, has a more efficient system, where informal payments to doctors are banned. None of this can reasonably be interpreted as evidence that Hungarians have a lower standard of living.
Student Loans
If we look at the education component of the AIC, we might assume that Türkiye has the best schools in Europe, since its consumption figure is the highest. It exceeds that of Belgium, Denmark, Finland, and Sweden by 20 per cent—and nearly doubles the figures of Malta and Bulgaria.
Hungary’s education figures are much closer to those of Malta and Bulgaria than to Türkiye’s. Is this because most Hungarians drop out after 7th grade? Certainly not. Hungary has a comprehensive, free public education system that includes kindergartens, primary and secondary schools, and universities. Students receive free textbooks, and for children from larger families, lunch is also provided at no cost.
From A to B
Our capital, Budapest, has an excellent public transportation system. It is efficient, operates long hours, and—most importantly—is very affordable. An adult monthly pass costs approximately 20 euros, while for students and the elderly, it’s less than 10 euros.
‘Students receive free textbooks, and for children from larger families, lunch is also provided at no cost’
In Hungary, a nationwide monthly travel pass is available for under 50 euros. For students, the cost is less than 5 euros. This pass covers all trains and intercity bus services, making Hungary one of the countries with the lowest transportation costs in Europe. Is it bad news for the average citizen that her real transportation consumption is only one-fourth that of someone in Luxembourg? Certainly not.
Cars for All
The category of personal transport equipment also raises questions about the reliability of AIC figures. According to the data, Norway’s figure is more than six times higher than Hungary’s. Does this mean Norwegians own six times more cars than we do? Not at all. In reality, Norwegians have only about 20 per cent more cars per capita than Hungarians.
So how can their AIC figure be six times higher? One possible explanation is that—even after adjusting for their significantly higher prices—their total consumption must still be five times greater than ours. That would imply that Norwegian cars are roughly eight times more expensive than Hungarian ones, which seems highly unlikely. The more plausible explanation is that the AIC figure simply does not reflect the real situation.
A Better Hungary?
Are Hungarians poor? Not at all—at least not if we look at any conventional and fair measure of wealth. Whether we examine PPP-adjusted wages, household savings, public or private debt levels, poverty rates, or other meaningful indicators, it becomes clear that Hungary is performing relatively well within the region.
‘The AIC is not designed to measure poverty or material well-being; it is merely intended to compare consumption levels’
The AIC is not designed to measure poverty or material well-being; it is merely intended to compare consumption levels—in theory. But as demonstrated in this article, in practice, it fails spectacularly. It fails to account for free services, is distorted by national price level differences, suffers from large rounding errors, and includes figures that are simply implausible—such as Hungary’s reported fish consumption, Romania’s bread consumption, negative narcotics consumption in some countries, and inflated personal transport figures.
In Hungary’s case, the AIC significantly underestimates actual consumption due to our exceptionally low household energy bills, universally accessible free healthcare and education systems, and very low transportation costs. Improving our AIC figure would be easy—but misleading. If Hungarians paid the same for water, gas, electricity, and transportation as Austrians do, our AIC score would increase by 3,100 points. Under this scenario, Hungary would leap ahead of Czechia, Greece, Türkiye, Croatia, Slovakia, Latvia, Estonia, and Bulgaria in the rankings. But would Hungarians be better off? Certainly not. We would simply be spending more for the same services, leaving us with less money at the end of the month. This is what everyone should understand before assuming that a low AIC figure is bad news for Hungary.
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