Reforms for Stability and Sustainable Growth

An OECD Perspective on Hungary

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EU accession in 2004 has confirmed Hungary’s successful transformation from a centrally planned economy into a functioning market economy operating within the framework of a multi-party democracy. However, the country’s output per capita is still well below the EU average, and public expenditures exceed revenues by a large margin. This report looks at ongoing efforts to restore fiscal balance and promote sustainable growth to accelerate the convergence process. Drawing on the experience of OECD member countries it proposes structural reforms to achieve these objectives, covering the following topics:

• Fiscal policy: Deficit reduction and making taxes and expenditures more growth friendly.

• Health care reform: Improving efficiency and quality of care.

• Pension reform: Providing old-age income security in the face of population ageing.

• Employment and social policies: Making formal employment more attractive.

• Education reform: Improving human capital formation.

• SME promotion:  Increasing competitiveness and fostering successful entrepreneurship.

• Innovation: Fostering rapid productivity growth.

• Energy policy and the environment: Responding to the threat of climate change.

• Public administration reform: Improving the performance of the public sector.

• E-government: Using technical progress to improve public service delivery.

An overview chapter synthesises the findings, highlighting the interdependence of policy actions in the various areas.



Employment and Social Policies: Making Formal Employment More Attractive

Hungary has one of the lowest employment rates in the OECD. This partly reflects the amount of unregistered activities, but various work disincentives also play a role. The relevant features include the welfare benefit system, family policies, and a relatively high minimum wage. This chapter discusses options for labour market policy to increase labour utilisation in Hungary while also improving the conditions for formal employment. Progress is being made to limit access to disability benefits, via encouraging rehabilitation. Also, there have been changes to the unemployment benefit system as well as in sickness pay rules. This chapter discusses ways to support these changes by creating an effective system of public employment services (PES) and private subcontracting arrangements. On family policies, this chapter suggests measures to improve the balance between work and family life, including by raising the provision of childcare facilities and a system of childcare vouchers which would help to widen choices. Assessment also suggests a need for increasing employment opportunities for low skill workers by keeping minimum wages moderate. This chapter also discusses policies for promoting better co-ordination between the minimum wage system and taxation so as to avoid poverty traps.


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