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.



Public Administration Reform: Improving the Performance of the Public Sector

Hungary’s policy agenda to bolster sustainable growth in the context of fiscal consolidation calls for more efficient public administration. Sustainable growth involves improvements in income levels and public service delivery. Higher income levels result from exploiting national resources via a coherent policy mix. Ensuring equitable access to higher quality public services requires appropriate mechanisms of collaboration among public authorities, both vertically and horizontally. Public administration in Hungary faces a series of challenges. Besides a low level of trust in government and a lack of strategic focus, structural weaknesses exist in local and regional governance. At the lower level, the large number of small local governments with a wide range of responsibilities but limited financial resources often makes it difficult to reap economies of scale and to ensure coherence in policy implementation. At the intermediate level, the coexistence of elected and non-elected entities with overlapping responsibilities generates confusion. Following the initial move towards institutional reform and decentralisation during the 1990s, Hungarian public administration is currently going through a renewed process of modernisation. Efforts are being launched to achieve more efficient public service delivery and to rationalise the budget. This chapter provides an overview of key challenges, ongoing policy reforms, and suggestions for further improvement in public administration. In particular, it recommends promoting voluntary collaboration between local governments, investing in local capacity building, fostering territorial development strategies, and adopting performance-oriented budgeting practices.


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