Economic Policy Reforms 2023

Hungary

See more data for Hungary on the related dashboard.

Product and labour markets functioning

Performance gaps

• Productivity differences are large between capital-rich and investment intensive foreign owned companies that compete on world markets, and domestic capital poor and low-productivity firms, with low investments focusing on home markets and few connections to international supply chains.

• The pro-competitive regulatory framework is little used. The competition authority is not sufficiently active in sectors with high risk of collusion.

• Firm entries and exits are consistently low, pointing to weak competition. This has allowed low-productivity firms to maintain disproportionally large market shares.

Recommendations

• Reduce turnover-based sectoral taxes that hinder entry and expansion of productive firms.

• Enhance anti-corruption oversight to ensure better use of public resources.

• Increase funding for the competition authority to adequately enforce regulations and for retaining highly specialised experts. Revise sector specific exemptions from competition scrutiny on grounds of national strategic interest.

• Reform costly and lengthy insolvency procedures.

Digital transition

Performance gaps

• Low digitalisation reflects lagging adaptation of digital technologies in smaller firms and by the public sector.

• Overall business adaption of high-speed broadband is also less than elsewhere. Digital preparedness is low, hindering the implementation of new technologies and the integration into international supply chains.

• Mobile internet prices are also high, hampering mobile broadband usage.

Recommendations

• Prioritise the adaption of digital technologies in the public sector to lead digital transformation in other parts of the economy.

• Reduce high mobile internet prices, which impede mobile broadband usage.

• Phase out taxes on phone call minutes and text messages.

Inclusiveness, social protection, and ageing

Performance gaps

• Employment among young mothers is low due to limited availability of early school places and childcare facilities.

• Local train networks are underdeveloped, and local roads are poorly maintained, hampering labour market inclusion and adding to regional economic disparities.

• The pension system has a large variation in benefits and entails a high risk of old-age poverty.

Recommendations

• Expand the availability of affordable, high-quality childcare.

• Increase investment in local train networks. Expand funding for maintenance of secondary and tertiary roads.

• Introduce a basic state pension as well as flexible retirement schemes for those beyond retirement age, to allow a combination or work and pension entitlements as an alternative to full retirement.

Climate transition

Performance gaps

• Additional policies are needed to align with the EU’s new and more ambitious target of a 55% reduction in GHG emissions by 2030.

• A combination of subsidies and varying tax rates in energy results in relatively low effective tax rates on CO2 and high abatement costs.

Recommendations

• Adjust taxation and subsidies on polluting activities to be more directly in line with their environmental damages, and follow the polluter pays principle to promote more sustainable economic growth.

• Enhance programs to improve energy and thermal efficiency of the housing stock. In line with the EU energy performance directive.

Overall performance