OECD Economic Survey Hungary 2021 - Presentation

OECD ECONOMIC SURVEY OF HUNGARY 2021 30 July 2021, Budapest

@OECDeconomy

@OECD

https://www.oecd.org/economy/hungary-economic-snapshot/

The pandemic hit the economy hard

Source: OECD Economic Outlook: Statistics and Projections database.

The labour market is recovering

Note: Data are seasonally adjusted.

Source: OECD Main Economic Indicators database.

Wage growth has been strong

Note: Data are seasonally adjusted. Real average wages refers to the national-accounts-based total wage bill divided by the number of hours worked in the total economy, deflated by a price deflator for private final consumption expenditures in 2019 prices.

Source: OECD National Accounts database; and OECD calculations.

Inflation pressures remain high

Note: Core inflation excludes energy and food.

Source: OECD Main Economic Indicators database.

Macro-policy recommendations Continue to increase policy interest rates.

Exit from unconventional monetary policy measures.

Continue to provide targeted fiscal support.

Prepare for fiscal consolidation once the recovery is selfsustained.

• Adopt a strategy to reduce debt and prepare for fiscal ageing challenges.

• Complete the increase of the statutory retirement age to 65 and then link it to gains in life expectancy.

• • • •

REFORMS FOR STRONG AND SUSTAINABLE GROWTH

Ageing leads to a smaller and older workforce

Source: United Nations (2019), World Population Prospects: The 2019 Revision, Online Edition.

The labour tax wedge remains high

Note: The tax wedge is the sum of personal income tax and employee plus employer social security contributions together with any payroll tax less cash transfers, expressed as a percentage of labour costs for a single person (without children) on average earnings.

Source: OECD Taxing wages database.

Better environmental outcomes are needed

Source: OECD Environment database; and OECD Green Growth database.

Environmental taxes are low

Source: European Environment Agency; Confederation of European Waste-to-Energy Plants (CEWEP); and OECD (2018), OECD Environmental Performance Reviews: Hungary 2018, OECD Environmental Performance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264298613-en.

Recommendations for strong and sustainable growth • Make the tax system more growth-friendly: a) reduce labour taxation, b) increase consumption taxes and c) raise immobile property taxes. d) Address adverse distributional impacts.

• Simplify the VAT system with a broader-based and lower VAT rate.

• Unify carbon taxes. Set non-carbon fees according to the polluter pays principle.

• Ensure cost recovery in regulated energy. Help low-income households with targeted measures.

• Increase waste collection fees and water and wastewater service tariffs to finance needed investments.

SUPPORT SKILLS AND LABOUR MOBILITY

Labour market problems are concentrated in poor regions Employment rate and unemployment rate (in brackets) 2020

Note: Employment rate as % of working age population and unemployment rate (in brackets) as % of labour force, population aged 15-74. Average monthly number of participants in the Public Work Schemes are included in the unemployment rate.

Source: Hungarian Central Statistical Office; and OECD calculations.

Productivity is low

Note: Labour productivity is measured as real GDP per hour worked.

Source: OECD Productivity database; and OECD calculations.

Vocational training lacks apprenticeships

Source: OECD (2020), OECD Employment Outlook 2020: Worker Security and the COVID-19 Crisis, OECD Publishing, Paris.

The small rental market hinders mobility

Note: EU aggregate does not include the United Kingdom.

Source: Eurostat Housing Statistics database.

The gender pay gap is high

Note: The gender pay gap is defined as the difference between average gross hourly earnings of men and women paid employees relative to the average gross hourly earnings of men paid employees. Data refer to NACE Rev. 2 activities B to S, except O (i.e. Public administration and defence; compulsory social security). Data refer to full-time employees, defined as those individuals with usual weekly working hours equal to or greater than 30 hours per week.

Source: Eurostat Gender pay gap database.

Recommendations to support skills and mobility Link vocational schools funding to students in work placements.

Start apprenticeships when work placements are secured.

Balance rent regulation between tenants and landlords.

Increase the duration of unemployment benefits.

Increase investment in local train networks.

Bolster funding for road maintenance, using cost-benefit analysis and co-funding.

• Shorten parental leave and facilitate flexible working arrangements.

• Expand the availability of childcare.

• • • • • •

ENSURE DYNAMIC AND COMPETITIVE MARKETS

There is a large productivity gap

Note: Labour productivity is measured as real value added per employee.

Source: OECD calculations based on business balance sheet and business survey data from the Hungarian Central Statistical Office.

Hungary lags in ICT adoption

Note: Firms from the financial sector are excluded. High-speed broadband are subscriptions with 100+ Mbps.

Source: OECD ICT Access and Usage by Businesses database.

Occupational entry barriers are high

Source: European Commission (2020), Regulated Professions database (2020), European Commission, Brussels, https://ec.europa.eu/growth/tools-databases/regprof/

Competition in public procurement is low

Note: The Figure measures the proportion of contracts awarded where there was just a single bidder (excluding framework agreements, as they have different reporting patterns).

Source: Eurostat Single Market Scoreboard, Public Procurement, https://ec.europa.eu/internal_market/scoreboard/performance_per_policy_area/public_procurement/index_en.htm#indicators.

Mobile broadband prices remain relatively high

Note: The CEEC (Central and Eastern Europe Countries) aggregate includes Czech Republic, Hungary, Poland, and Slovak Republic; EU only includes OECD EU countries. 2019 data for Hungary is only indicative: it is an average of 2018 and 2020 data and not fully comparable with the observations for other countries due to a different methodology to calculate mobile basket prices.

Source: OECD Broadband Statistics database; and OECD calculations.

Further efforts to fight corruption are key

Note: The figure indicates that perception of corruption is low when the index is close to 100, whereas it is high when the index is close to zero.

Source: Transparency International.

Recommendations to ensure competitive markets • Review all key mergers. Exempt on explicit public interest grounds.

• Phase out sector taxes in energy, finance and retail sectors.

• Increase e-invoicing through the electronic procurement system.

• Increase the share of public procurement subject to competitive tendering and enhance transparency.

• Phase out levies on phone calls and messages.

• Use auctions to expand the number of mobile network operators.

• Establish an independent anti-corruption authority or a strong coordination committee.

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