Economics Department

Economic Survey of Hungary 2005

 

 

Published on 19 July 2005

Executive summary 

An Economic Survey is published every 1½-2 years for each OECD country. Read more about how Surveys are prepared

The OECD assessment and recommendations on the main economic challenges faced by Hungary are available by clicking on each chapter heading below. Chapter 1 identifies the challenges for which the subsequent chapters provide in-depth analysis and policy recommendations.










 


 

Chapter 1. Challenges in maintaining a fast pace of growth
This first Chapter of the OECD’s Economic Survey for Hungary looks at the main policy challenges in maintaining a fast pace of growth and introduces the issues tackled in the chapters that follow. Hungary’s growth over the past decade has been reasonably strong, though in the early 2000s it was driven too much by fiscally induced domestic demand growth. However 2004’s performance has seen a welcome shift back to investment and export led growth. There are four key policy challenges if this healthy pace of growth is to be maintained: i) there has to be a smooth entry to the euro area; ii) further work is needed in building sustainability in public spending, this Survey looks in depth at reform of the health care system; iii) further policy efforts are required to raise employment potential so as to increase Hungary’s relatively low labour utilisation; and iv) more work is needed on creating the right environment of business regulation and support, this Survey looks specifically at the government's recently increased focus on innovation.

Chapter 2. Entrenching macroeconomic stability and smoothing entry to the euro area
This Chapter discusses the challenges for monetary and fiscal policy given the government’s goal of joining the European Monetary Union in 2010. In fiscal policy, the key conclusion is that further reductions in the general government deficit have to come about through spending cuts because of the already high level of taxation. Failure to reach deficit targets have damaged credibility in the recent past and the Chapter discusses ways of providing more realistic budget targets, more transparent fiscal planning, better assessment of progress over the budget year and improved estimation of outcomes. In monetary policy, some fine-tuning of the Central Bank inflation targeting regime to help smooth euro entry is recommended, including setting inflation targets for a fixed number of quarters ahead. The Chapter also stresses that achieving the targets set in the Convergence Programme for joining the euro area will require close co-operation between fiscal and monetary policies.

Chapter 3.  Policies to improve the health care system
One area where spending discipline will become increasingly important is health care. This Chapter describes the structure of the health care system, highlights outstanding weaknesses and considers ways to make financing more stable and sustainable. The slow progress in modernising the health care system is reflected in the low efficiency of hospitals, excessive recourse to inpatient care and heavy prescription of drugs by doctors. The Chapter discusses ways to modernise the hospitals, including options for giving them more scope in managing resources and greater incentives to introduce efficiency enhancing improvements. To help reduce unnecessary use of inpatient services, mechanisms are suggested for strengthening the “gatekeeping” function of general practitioners and for reinforcing controls over treatment decisions. The Chapter also considers ways to contain the cost of subsidies to pharmaceutical companies.

Read also ECO Working Paper 446 In search of efficiency; improving health care in Hungary

Chapter 4. Raising the employment rate
The Hungarian government is conducting a series of reforms to tackle the low employment rate through tax and welfare reform. This Chapter first looks at measures taken recently to lower the tax wedge on labour through reductions in employers’ non-wage labour costs and reductions in personal income tax. In welfare reform, ongoing efforts to reduce the very large numbers of people on disability benefit are examined and the policy options for further reform in sickness pay and early retirement schemes are considered. The Chapter also considers whether reforms that cut generosity and restrict eligibility should be balanced by increased generosity in unemployment benefit to encourage more of the non-employed to engage in job-search activities. A final section of the Chapter looks at whether additional policy actions can be taken to improve transport networks for commuters and increase the level of labour mobility between regions.

Chapter 5. Policies to promote innovation
The Hungarian government has recently been focusing on innovation policy as part of a wider campaign to improve the business environment. This Chapter first underscores the importance of a good general business climate in encouraging both formal and informal R&D activity as well as ensuring Hungary benefits from the international diffusion of innovation. In examining specific innovation policies, the new National Innovation System is described and an assessment is made of the National Innovation Fund and the Innovation Contribution used to fund it. Assessment of changes in R&D tax allowances and in the strategy for giving out grants for research is also made. The chapter also looks at regulatory reform to improve industry-science links, including the government’s recent legislative changes that make it easier for universities to set up spin off companies. The final section considers what further reforms are needed to help tertiary and compulsory education become more conducive to innovation and to encourage the deepening of human capital in general.

See also ECO Working Paper 445 Hungarian innovation policy: what's the best way forward?

_____________________

A printer-friendly Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.

To access the full version of the OECD Economic Survey of  Hungary:

  • Readers at subscribing institutions can go to SourceOECD, our online library.
  • Non-subscribers can purchase the PDF e-book and/or printed book at our Online Bookshop.
  • Government officials can go to  OLISnet's Publication Locator.
  • Accredited journalists can go to their password-protected website.

For further information please contact the Hungary Desk at the OECD Economics Department at webmaster@oecd.org. The OECD Secretariat's report was prepared by Philip Hemmings and Alessandro Goglio under the supervision of Andreas Wörgötter.

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