Going for Growth - Hungary

ď ź 153

Hungary The income gap with the upper half of OECD countries has closed somewhat, helped by rising employment.

GDP per capita and GDP per hour worked are now close to two-thirds of the OECD average.

Inequality remains below the OECD average, though it has an important regional dimension. High concentrations of fine particles are resulting in adverse health impacts. Hungary’s mortality rate due to air pollution exposure is among the highest in the OECD. Modest recent administrative simplification includes a wider use of notification procedures of mergers and more than 50 entry qualification requirements for industry, commerce, tourism and catering were abolished.

A large-scale training programme to reintegrate the long-term unemployed into the labour force has also been implemented. There are ongoing efforts to improve tertiary education outcomes by focusing on more labour-market relevant programmes.

Considerable scope for further improvements in the business environment remains, through administrative simplification and better use of regulatory impact assessment. Sector exemptions hamper competition, while the presumption of market power for larger companies deter entrepreneurial activity. Educational attainment and outcomes can be further improved and special attention should be given to improve the poor outcomes of Roma people. The tax wedge should be lowered by reducing the reliance on social security contributions and shifting the tax burden to less distortive taxes. The statutory retirement age is being raised in steps to 65 by 2022. Thereafter it should be linked to gains in life expectancy.

Growth performance, inequality and environment indicators: Hungary C. The large gap in GDP per capita is closing again

A. Growth Average annual growth rates (%) GDP per capita Labour utilisation of which: Labour force participation rate Employment rate1 Employment coefficient2 Labour productivity of which: Capital deepening Total factor productivity Dependency ratio

2002-08 3.2 -0.4 0.3 -0.4 -0.4 3.5 1.2 2.2 0.1

2012-18 3.8 3.1 1.8 1.3 0.0 0.9 -0.2 1.1 -0.2

Level

Annual variation (percentage points)

2014 28.8 (31.7)*

2012-14 -0.1 (0)*

8.3 (7.6)*

0 (0)*

2016 5.8 (10.9)* 0.2 (0.3)* 0.1

Average of levels 2010-16 5.7 (11.3)* 0.3 (0.3)* 0.1

GHG emissions per capita4 (tonnes of CO2 equivalent) GHG emissions per unit of GDP4 (kg of CO2 equivalent per USD) Share in global GHG emissions4 (%) * OECD simple average (weighted average for emissions data)

Per cent 0

-10

-20

-30

B. Inequality and environment

Gini coefficient3 Share of national disposable income held by the poorest 20%

Gap to the upper half of OECD countries5

-40

-50

-60

GDP per capita GDP per hour worked

-70

Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases.

StatLink 2 https://doi.org/10.1787/888933954952

154 

Policy indicators: Hungary A. Graduation rate in tertiary education is low

B. Low-income earners face comparatively high labour tax wedge

2016

Percentage of total labour compensation,¹ 2018 % 50

46

45

44

40

42

35

40

30 25

38

20

36

15

34

10

32

5 0

HUNGARY

Advanced economies

HUNGARY

EU

Advanced economies

EU

30

Source: Panel A: OECD, Education at a Glance Database; Panel B: OECD, Taxing Wages Database.

StatLink 2 https://doi.org/10.1787/888933955826

Beyond GDP per capita: Hungary A. Inequality is lower than in most advanced economies Gini coefficient, 2016 or last available year¹ HUNGARY, 28.8 SVK, 24.1

ZAF, 63.0

Advanced economies median, 29.7

Emerging economies median, 46.2

B. Exposure to fine particulate matter is high Percentage of population exposed to PM2.5, 20172 % HUNGARY

Advanced economies

< 10 μg/m³ 10-35 μg/m³

Emerging economies

> 35 μg/m³

World 0

10

20

30

40

50

60

70

80

90

100

Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database.

Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter.

StatLink 2 https://doi.org/10.1787/888933956700

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Hungary: Going for Growth 2019 priorities Ease administrative and insolvency procedures for businesses. Overly burdensome and frequently changing regulation, coupled with lengthy and opaque insolvency procedures, are hampering business investment and productivity growth. 

Actions taken: Some measures to simplify administrative procedures have been implemented, for example, electronic submission in civil courts for business matters. The competition authority intervened in several markets in 2017 to propose more competition friendly regulation.



Recommendations: Implement regulatory impact assessment to ensure regulations do not unnecessarily hamper market entry and competition. Increase transparency in public policy formulation. The competition authority should systematically review new legislation for barriers to competition. Insolvency procedures should be streamlined and effective reorganisation proceedings put in place. The time before formal closure should be reduced and market exit facilitated.

Improve outcomes and equity in education. A steady decline in PISA scores, continued low graduation rates from tertiary education, poor vocational training outcomes and high drop-out rates are leading to skills-mismatches and hampering employment and productivity growth. 

Actions taken: A Digital Education Strategy for 2017-2020 has been adopted by the government to enhance digital literacy and usage, covering all levels of education from early school to adult learning.



Recommendations: Extend the period of compulsory secondary schooling to enhance general skills and promote equity in outcomes. Develop key performance indicators for vocational training institutes and embed apprenticeships better into the mainstream education. Stimulate the collaboration between higher education institutions in strategic areas. Integrate the use of ICT technology across most subject matters. Extend support to disadvantaged students in tertiary education.

Increase work incentives for the elderly. The labour market participation and employment rates for workers over 55 years of age remain below the EU average. Only 53.6% of the 55-64 age group are working, and incentives to remain in the labour market have been scarce in the past. 

Actions taken: From 2019 social contribution taxes will no longer be charged for old-age pensioners who remain in the labour market, only the 15% personal income tax.



Recommendations: The statutory retirement age should be indexed to gains in life expectancy.

Improve lifelong learning on the job through introducing individual training accounts. Allow for parttime work while drawing a partial pension for the over-55s. Better targeted job-search assistance and monitoring should be systematically implemented for older unemployed workers.

Reduce the tax-wedge on labour income. The average tax-wedge remains relatively high in international comparisons, especially for low-income workers. 

Actions taken: Social security contributions were reduced for employers in 2017 and 2018, and will fall further in 2019, taking the total reduction to 9.5 percentage points since 2016. Families with two children will receive increased benefits in 2019.



Recommendations: The tax wedge on low wages could be further reduced by the introduction of an employment tax credit that declines as wages increase and an increase in the tax-free threshold amount. Shift the focus of taxation to less distortive taxes such as car-fuel use and property or land taxes.

156 ď ź *

Increase female labour market participation. The participation rate for women after childbirth is very low by OECD standards, leaving out an important source of labour market supply and productivity growth. ď&#x201A;ˇ

*

Recommendations: Continue to expand the availability of childcare facilities for children below the age of three, and align opening hours with working hours. Create a voucher system from the parental leave benefits towards the purchase of childcare services. This can stimulate private sector provision of childcare. Improve incentives for working mothers to return to the labour market, such as part-time employment, and promote paternity leave.

New policy priorities identified in Going for Growth 2019 (with respect to Going for Growth 2017). No action can be reported for new priorities.