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.


Healthcare Reform: Improving Efficiency and Quality of Care

The Hungarian government has succeeded in creating a “momentum for change”, after a ten-year deadlock of reforms in the health system. The first section of this chapter describes the context of the reforms: relatively poor health status of the population and relatively low public spending on health in an international context; the underlying causes of the inadequate performance of the healthcare system; and narrow fiscal latitude for health reforms. The second part of the chapter discusses the measures taken in 2007, highlighting the important contribution of the health sector to fiscal consolidation, in particular the reform of the pharmaceutical market. The chapter also points out that cost-containment goals and regional political interests may at times have dominated efficiency and quality objectives, in particular in the reorganisation of the hospital network. In February 2008, the Hungarian Parliament passed an Act replacing the single-payer system by a decentralised system of compulsory health insurance funds with joint public-private ownership. The chapter highlights international experience suggesting that competition in health insurance markets does not automatically deliver intended improvements in cost-efficiency and quality. From this perspective, the chapter discusses the potential advantages and risks to the new health insurance system. The third part of the chapter discusses the scope for policy improvement, with some proposals for fine-tuning and extending the supply-side reforms and improving the quality and economic regulation. The need for the establishment of a long-term strategy to improve the population’s health status and to ensure sustainable financing and adequate human resources is also emphasised.


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