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2007 OECD Economic Surveys: Hungary 2007

image of OECD Economic Surveys: Hungary 2007

OECD's economic survey of Hungary 2007 assesses the government’s programme to cut the deficit and reform public spending. It also takes an in-depth look at family policies such as childcare provision and parental leave.

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Assessment and recommendations

After re-election of the centre-left coalition in April 2006, the government announced ambitious plans for fiscal consolidation, following admission that its deficit could be well over 10% of GDP without consolidation measures and indication that entry to the euro area in 2010 was impossible. The 2006 deficit, at 9.2% of GDP, indeed marked another peak in Hungary’s strong electoral spending cycle. The government’s goals imply breaking out of this. The aim is for a deficit below 3%, and on a sustainable basis for the future, by the next election in 2010. The consolidation programme comprises immediate revenue and spending measures, many of which are intended to be temporary, combined with wide ranging structural reform to public spending. The potential payoff is large. A permanently low deficit would put public debt on a downward path and return dividends to the economy via lower interest rates, reduced current account imbalances and fewer problems with exchange-rate volatility.

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