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The following OECD assessment and recommendations summarise Chapter 4 of the Economic survey of Hungary, published on 22 May 2007.
Family policy needs to focus more on childcare services
Women in Hungary take much longer periods off work when they have children compared with most other OECD countries, largely due to a family policy that focuses on providing options for lengthy parental leave backed by cash benefits. While in terms of the employment rate, this is not as important as tackling the problems of early retirement and disability, there are nevertheless relevant policy issues. International evidence that this approach helps raise low fertility rates is thin and there are economic downsides to it. Long separation from the labour market damages women’s earnings and career prospects, and from a macroeconomic perspective this reduces the employment rate and weakens human capital development. Policy should therefore focus more on helping parents combine work and family roles.
Central government has stepped up provision requirements on municipalities regarding childcare services and has increased grants. This will further help overcome under-provision that, for example, arises from externalities in human capital development and social cohesion. Future policies should focus on:
Continued attention to childcare provision requirements. The impact of the changes in provision regulations should be closely monitored and, if necessary, bolstered by further measures. In terms of childcare service flexibility, policy goals laid out in the government’s programme ought to be followed up on. In particular, plans to encourage longer operating hours look promising.
Reduction in the municipalities’ contribution to costs. Further increases in the central-government grant for services could be useful, as long as savings can be found elsewhere in the system – reductions in family cash benefits being one candidate. The restrictions on parental fees should also be lightened.
New funding arrangements. A system in which vouchers are given to parents to spend on childcare services (possibly in lieu of cash benefit) could be one way of widening provision and allowing subsidies to more strongly reflect parental preferences.
And reform is required to the system of cash benefits and leave
Parental leave for each child can last for up to three years and often lasts much longer than this because leave can overlap when women have more than one child. The leaves are part of a complex system of additional cash benefits for when children are below kindergarten age. The Hungarian government considers this approach reflects societal preferences for family-based childcare. However, it is expensive to run and international evidence suggests it has adverse effects on women’s careers. Given the size of budgetary transfers in the family support system, cost-effectiveness would seem to merit continuing attention. Reforms should be contemplated to reduce the duration of these provisions and savings from this channelled into childcare services. Specifically:
Reform could entail removal of the universal third-child benefit and significant reform of the benefits for when children are below kindergarten age. Whatever specific measures are considered, possibilities for extended leave ought to be cut back and savings in spending made to help fund childcare services. Some offset could be made through increases in the replacement rate (and perhaps raising of the cap) of the insurance benefit covering the six-month maternity leave. Increased paternity leave should also be considered.
Three schemes could be removed without any significant implications for either the universal or targeted “safety net” dimensions of policy. The cash component of “child social support” is effectively redundant due to the new welfare top-up payments. Also, the maternity grant and the third-child tax allowance provide relatively small amounts of cash support that could be integrated into another benefit, such as the family allowance.
Changes to the equivalence scale used in calculating the welfare top-up payments to deal with welfare trap problems should be considered. Additional measures could comprise extension of the period allowing retention of a share of the welfare top-up payments when someone gets a job, or the introduction of earned-income tax credits.
Further work is needed in identifying and removing barriers to the creation of jobs with hours and flexibility that suit working parents. Further reforms that give more flexible choices to public-sector employees would provide a useful lead on this front. Also, when room becomes available to proceed with tax reforms, resumption of the phase-out of the lump-sum employers’ healthcare contribution should be on the priority list.
Key features of families in Hungary(1)
1. The total fertility rate is the expected number of children that would be born per woman, in her child-bearing years (15 to 49), based on current age-specific fertility rate data. A total fertility rate of 2.1 children per woman ensures broad stability of the population, on the assumptions of no migration flows and unchanged mortality rates. Rates for regions are averages of country rates.
Source: Hungarian Central Statistical Office; OECD, Society at a Glance, 2006.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic survey of Hungary 2007 is available from:
For further information please contact the Hungary Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Philip Hemmings and Alessandro Goglio under the supervision of Andreas Wörgötter.