EN   EN 
 
 
 EUROPEAN  
COMMISSION   
Brussels, 27.2.2019  
SWD(2019) 1016 final  
 
COMMISSION STAFF WORKING DOCUMENT  
Country Report Hungary 2019  
Accompanying the document  
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN 
CENTRAL BANK AND THE EUROGROUP  
2019 European Semester: Assessment of progress on structural reforms, prevention and 
correction of macroeconomic imbalances, and results of in -depth reviews under 
Regulation (EU) No 1176/2011  
{COM(2019)  150 final}   
 
 
1 Executive summary  4 
1. Economic situation and outlook  7 
2. Progress with country -specific recommendations  14 
3. Reform priorities  17 
3.1. Public finances and taxation  17 
3.2. Financial sector  21 
3.3. Labour market, education and social policies  24 
3.4.  Competitiveness reforms and investment  32 
Annex A: Overview Table  45 
Annex B: Commission Debt sustainability analysis and fiscal risks  50 
Annex C: Standard Tables  51 
Annex D: Investment Guidance on Cohesion Policy Funding 2021 -2027 for Hungary  57 
References  63 
 
LIST OF TABLES  
Table  1.1: Key economic and financial indicators - Hungary  13 
Table  2.1: Assessment of the implementation of 2018 country -specific recommendations (CSR)  15 
Table  3.2.1:  Financial soundness indicators, all banks in Hungary  21 
Table  C.1: Financial market indicators  51 
Table  C.2: Headline Social Scoreboard indicators  52 
Table  C.3: Labour market and education indicators  53 
Table  C.4: Social inclusion and health indicators  54 
Table  C.5: Product market performance and policy indic ators  55 
Table  C.6: Green growth  56 
 
LIST OF GRAPHS  
Graph  1.1: Contributions to real GDP growth  7 
Graph  1.2: Investment rate  by sector (% of GDP)  7 CONTENTS  
 
 
2 Graph  1.3: Key labour market rates: activity, unemployment, long -term unemployment, youth 
unemployment, NEET (%)  8 
Graph  1.4: Labour costs and unemployment  8 
Graph  1.5: Unit labour cost growth  9 
Graph  1.6: Contribution to inflation  9 
Graph  1.7: Net international investment position  10 
Graph  1.8: Financial liabilities by sector (non -consolidated loans & debt securities, % of GDP)  11 
Graph  1.9: Convergence of GDP per capita between 2007 and 2017 (PPS, EU=100)  11 
Graph  1.10:  Contributions to potential growth  12 
Graph  1.11:  Regional GDP per capita based on purchasing parity (% of EU average)  12 
Graph  2.1: Overall multiannual implementation of 2011 -2018 CSRs to date  14 
Graph  3.1.1:  Tax wedge of a single worker earning 67% of average wage  17 
Graph  3.1.2:  Trends in primary expenditure (% of GDP)  18 
Graph  3.1.3:  Breakdown of general government spending, three year average (2014 -2016)  19 
Graph  3.1.4:  Gross government debt ratio: the baseline scenario and alternative trajectories  20 
Graph  3.2.1:  Credit growth  21 
Graph  1: Real house prices in Hungarian regions (peak of previous cy cle=100)  23 
Graph  3.3.1:  Regional unemployment rate and participation in the Public Works Scheme, 2017  24 
Graph  3.3.2:  Childcare under 3 years age (%)  25 
Graph  3.3.3:  Main poverty indicators, 2005 -2018  27 
Graph  3.3.4:  Programme for International Student Assessment (PISA) results, 2000 -2015  29 
Graph  3.3.5:  Tertiary education atta inment rate among 30 -34 years, 2008 -2017, relative to EU 
average  30 
Graph  3.4.1:  Labour productivity (total economy, 2000=100)  32 
Graph  3.4.2:  Investment in intellectual property (% of GDP)  32 
Graph  3.4.3:  Use of IT solutions by businesses (% of companies in 2017)  35 
Graph  1: Share of financially unviable ('zombie') firms in the Hungarian business sector  37 
Graph  3.4.4:  Decomposition of business sector productivity growth (%)  38 
Graph  3.4.5:  Labour productivity in the market service sector relative to the EU average (2000=100)  39 
Graph  3.4.6:  Average of the voice and accoun tability and control of corruption indexes in 
Worldwide Governance Indicator (EU average=100)  41 
Graph  3.4.7:  Share of tenders without prior publication and award of contracts with only a single 
bidder above EU threshold  43 
 
 
 
3 LIST OF BOXES  
Box 2.1: EU  funds and programmes contribute to addressing help overcome structural challenges 
and to  fostering growth and competitiveness development in Hungary  16 
Box 3.2.1: Regional disparities in house prices  23 
Box 3.3.1: Monitoring performance in light of the European  Pillar of Social Rights  26 
Box 3.4.1: Investment challenges and reforms in Hungary  33 
Box 3.4.2: Zombie firms in Hungary  37 
 
 
4 Strong growth performance has created 
favourable conditions to carry out reforms to 
increase productivity and strengthen growth 
fundamentals, economic resilience and 
convergence capacity  (1). The economic cycle is 
near its peak. Productivity growth has improved, 
but remains below pre -crisis rates , limiting the 
possibility for income convergence. Economic  
policy faces the dual task of withdrawing 
macroeconomic stimulus at the right time to 
prevent overheating, while improving education 
and training, and creating a business environment 
that attracts productivity -enhancing investm ent. 
The Hungarian economy is enjoying a strong 
cyclical upswing.  Households and companies are 
making up for years of postponed consumption 
and investment, which  is rapidly lifting economic 
activity. A positive feedback loop is emerging 
between household i ncome, the housing market 
and lending, adding to economic momentum. This 
is an opportunity for a generation of well planned 
investments. Employment has risen to a new 
historic peak, thanks to strong demand for labour 
and policy measures enabling a larger p roportion 
of people to seek paid work. Labour shortages and 
large minimum wage increases are sparking rapid 
wage growth. Economic growth was also boosted 
by pro-cyclical fiscal expansion , entailing rising 
public investment from own sources and the 
absorpti on of EU funds. Monetary stimulus 
remained in place through record low real interest 
rates and a gradually depreciating currency.  
The domestic recovery is nearing its limits amid 
external headwinds.  Economic growth is set to 
level off  after pent -up consum ption unwinds, while 
investment is stabilis ing at a high level. The 
external environment is also providing less support 
to export growth, while the major role played by 
the car industry creates a vulnerability to trade 
disputes and to regulatory and techno logical 
change.  
                                                           
(1) This report assesses Hungary ’s economy in light of the 
European Commission’s Annual Growth Survey published 
on 21 November 2018. In the survey, the Commission calls 
on EU Member States to implement reforms to make the 
European economy more productive, resilient and 
inclusive. In so doing, Member States should focus their 
efforts on the three elements of the virtuous triangle of 
economic policy — delivering high -quality i nvestment, 
focusing reforms efforts on productivity growth, 
inclusiveness and institutional quality and ensuring 
macroeconomic stability and sound public finance.  Loose macroeconomic policies are heating up 
the economy.  Policy stimulus has supported 
productivity -enhancing investment, but as the 
economic cycle matures, it also risks creating new 
imbalances. Labour costs continue to outpace 
productivi ty growth, fuelling inflation. The 
external surplus of the economy is diminishing, as 
weakening exports cannot fully counterbalance 
dynamic import growth. The large increase in 
public investment is aggravating capacity 
shortages in construction, leading to  cost overruns 
and project delays, and contributing to rapid house 
price increases. Persistently easy financing 
conditions are creating opportunities to invest, but 
present a challenge in terms of using ample 
financial resources efficiently. Macroeconomic 
policies now face the challenge of regaining their 
manoeuvring space before the next downturn.  
Fiscal consolidation efforts are insufficient . The 
budget deficit is expected to peak at around 2  % of 
GDP, and only a moderate improvement is 
projected in the next years. The deficit is one of 
the highest in the European Union, while public 
debt also remains high for Hungary’s level of 
development. The favourable economic cycle 
boosted tax revenues, but the structural deficit rose 
by 2 percentage points of GDP b etween 2016 and 
2018. In 2018, the Council launched a significant 
deviation procedure  addressed to Hungary  (2). The 
structural deficit is expected to improve  in 2019 , 
although less than what is recommended by the 
Council. Further improvement is expected in  2020 . 
Stronger productivity growth  will enable 
income to catch up with the EU average . In the 
course of the last decade, the mobilisation of 
labour market reserves has helped income per head 
catch up with the EU average, while output per 
worker has barely  grown. Labour reserves have 
diminished and the working -age population is set 
to decrease in the medium term. Higher 
productivity is thus essential if living standards are 
to be brought closer to the EU average.  
Increased investment in research, innovation , 
infrastructure and skills are important to 
improve productivity and long -term growth 
that benefits society as a whole.  Public and 
private investment as a share of GDP is high, but 
                                                           
(2) https://www.consilium.europa.eu/en/press/press -
releases/2018/06/22/hungary -and-romania -called -on-to-
correct -significant -budgetary -deviations/  EXECUTIVE SUMMARY  
Executive summary  
 
 
5 its composition could be better geared to raise 
productivity. Research and innovation capacities 
need to be enhanced to improve moderate 
innovation performance. Territorial inequality 
could be alleviated by improving infrastructure and 
public services in deprived areas. Investment is 
crucially need ed in skills, educati on and training  to 
boost future economic growth in Hungary. Other 
relevant investment spending items are childcare, 
healthcare and social inclusion . Greening the 
economy requires investment in e nergy efficiency, 
climate change resilience and waste manageme nt. 
The institutional framework needs to improve to 
ensure that the economic and social benefits of 
these investments are maximised.  Annex D 
identifies key priorities for support by the 
European Regional Development Fund, the 
European Social Fund Plus and the Cohesion Fund 
for the 2021 -2027 period in Hungary, building on 
the analysis of investment needs and challenges 
outlined in this report.  
Overall, Hungary has made limited progress in 
addressing the 2018 country -specific 
recommendations.  
There has been some progress in the following 
areas: 
 The complexity of the tax system has been 
reduced as several small taxes were abolished 
or merged. The number of participants in the 
Public Work Scheme has decreased further and 
the tax burden on employees after retire ment 
has been  cut, helping to unlock labour reserves.  
There has been limited progress in the following 
areas:  
 The public procurement framework improved 
as incentives were created to discourage less 
transparent tendering procedures. Some  
measures have been  introduced to prevent the 
high concentration of disadvantaged pupils , in 
particular Roma pupils , in certain schools , with 
limited impact. The adequacy of social 
assistance improved modestly as some transfers 
were increased.  
There has been no progress in the following areas:  
 No measures have been  put forward to 
reinforce the anti -corruption framework and 
strengthen prosecuto rial efforts . The regulatory environment in services has not improved. The 
quality and transparency of decision making 
and social dial ogue has not advance d.  
Regarding the progress on reaching the national 
targets under the Europe 2020 Strategy, Hungary is 
performing well in reducing greenhouse gas 
emissions, increasing renewable energy use , 
boosting the employment rate  and cutting pover ty. 
More effort is needed to raise research and 
development  spending and tertiary education 
attainment, and reduce early school leaving .  
Hungary performs well on some indicators of 
the Social Scoreboard supporting the European 
Pillar of Social Rights, but  challenges remain.  
The gender employment gap is high, partly 
explained by a scarcity of childcare facilities for 
children under 3 years of age. The share of early 
school leavers increased further from an already 
high level. While inequality is lower than in other 
Member States, it has increased since 2008, partly 
as a result of changes in the tax and benefit system. 
With social benefits at  a low level, the good score 
on the impact of social transfers can be explained 
by generous parental leave benefits. On  the 
positive side, the unemployment rate, including 
long-term, is below the EU average.  
The main findings of this country report, and the 
related policy challenges, are as follows : 
Productivity growth remains modest . It has been 
slow for a decade compared to Hungary’s regional 
peers. Large productivity differences persist 
between larger, more capital -intensive foreign 
firms, and smaller, more labour -intensive domestic 
counterparts. Only few firms innovate, reflecting 
weaknesses in the entrepreneurial culture and 
product market competition. Low funding for 
public research and development  is detrimental to 
the research and innovation system. The skills 
level of managers and workers are not high enough 
to secure the sprea d of efficient business practices 
such as digitalisation.  
Limitations to product market competition 
hinders the selection process of efficient 
enterprises.  Regulatory barriers and state 
involvement  including new monopolies and ad hoc 
exemptions from compe tition scrutiny, inefficient 
insolvency procedures, targeted measures, and 
sector specific taxes prevent productive businesses 
Executive summary  
 
 
6 from starting up and growing . They also shield 
unproductive firms that might otherwise close 
down, especially in retail and other  services. The 
complex tax system raises compliance cost s, in 
particular for smaller firms. The absence of 
withholding taxes on interests, royalties and 
dividends appears  to be used by multinationals 
engaged in aggressive tax planning structures, but 
Hunga ry is taking  some  steps to limit  such 
practices, in particular by implement ing European  
and internationally agreed initiatives.  
Improved  institutional capacity would 
contribute to faster  economic convergence. The 
transparency of policy -making is limited due to the 
lack of appropriate involvement from  employers’ 
associations , trade  unions and other stakeholders. 
The same applies to impact assessments. Fast and 
unpredictable changes in regulations can 
discourage high value added investments. The 
public procur ement framework has improved in 
recent years, but it still fails to promote 
competition and productivity. Available indicators 
point to notable corruption risks. Determined 
action to prosecute corruption in high -level cases 
is missing. Weak accountability and obstacles in 
access to public information hinder the anti -
corruption framework. The effectiveness of the 
justice system increasingly raises concerns , in 
particular as regards judicial independence . 
Corruption risks and favouritism distort the 
allocation of resources as these are not channelled 
to the most productive firms.  
Both t he education and healthcare systems are 
underperforming . Educational outcomes in basic 
skills and the tertiary attainment  rate are well 
below the EU average. Disadvantaged children 
have little chance of acquiring appropriate basic 
skills and accessing higher educational tracks. 
Health outcomes lag behind most other EU 
countries reflecting unhealthy lifestyles and the 
limited  effectiveness of healthcare provision. 
There are significant socio -economic disparities in 
access to quality care. Public spending on 
healthcare is below the EU average, and high 
earners rely on out -of-pocket payment to access 
quality provision. The syste m remains strongly 
hospital -centred, with weaknesses in primary care 
and prevention of chronic diseases. The exclusion 
of disadvantaged groups, in particular Roma, from 
quality education is a missed opportunity in human 
capital accumulation.  Employment pol icies face the challenge of 
creating a more inclusive labour market.  Gaps 
in employment and salaries between genders and 
skills groups remain wide compared with the rest 
of the EU. The tax burden for single earners on 
low incomes remains high, despite rece nt cuts in 
employers’ contributions. Labour market outcomes 
for vulnerable groups, including Roma and people 
with disabilities, are weak. The Public Works 
Scheme has decreased markedly, but it is still 
oversized and not effective in leading participants 
to the jobs in the primary labour market. Other 
policies to help unemployed or inactive people 
find work or training are insufficiently targeted. 
Recent measures are designed to get more retired 
workers back into jobs and to increase overtime.  
Poverty has decreased with  economic growth.  
The share of people at risk of poverty and social 
exclusion is falling, although it was still above the 
EU average  in 2017 , while  social  assistance and 
unemployment benefits have become less 
adequate. There has been a clear s hift from social 
benefits towards work -related family support and 
in-kind benefits, which are not sufficiently targeted 
on the poor. While home -ownership subsidies have 
expanded, there has been no improvement in social 
housing.  
Large regional disparities p ersist.  The relatively 
well-developed capital stands in contrast to weak 
regional centres and a large number of very small 
settlements, which struggle with degrading 
infrastructure and depopulation. Territorial 
concentration of poverty and social exclusion  is 
also significant. Recent policy initiatives aim to 
strengthen larger cities and improve quality of 
living in villages, but a more holistic approach to 
territorial development is needed.  
Shortcomings in the management of natural 
resources hamper sustain able growth.  Energy 
efficiency remains low, especially in residential 
buildings. The use of renewable energy sources is 
rising with potential for further increase. Air 
pollution and water quality remain concerns and 
waste recycling is underdeveloped. Hunga ry is 
exposed to climate change risks, notably droughts 
and floods. These issues require additional 
investment and institutional capacity building.  
 
 
7 GDP growth  
The Hungarian economy is near the peak of a 
strong cyclical recovery.  Domestic consumption 
and investment are making up for lost years after 
the financial crisis and macroeconomic 
stabilisation. Policies that supported the recovery 
are now exacerbating the heating up of the 
economy as spare capacity has been absorbed 
while productivity growth remains modest.  
Economic growth accelerated further in 2018, 
boosted by pro -cyclical fiscal and monetary 
stimulus.  Fiscal expansion materialised through 
public investments, advance payments of EU funds 
and administrative wage increases . The monetary 
stimulus was maintained through negative real 
interest rates and a depreciating currency. The self -
reinforcing dynamics of the labour market, the 
housing market and lending also added to 
economic momentum. At the same time, weaker 
external d emand held back export growth.  
Graph  1.1: Contributions to real GDP growth  
 
Source:  European Commission , Winter 2019 Economic 
Forecast  
 Growth is set to slow, as the cyclical recovery nears its e nd . GDP growth is forecast to decrease from a cyclical pe ak  close to 5  % in 2018 to 3.4  % in 2019 and to fall further to 2.6  % in 2020 (see Graph 1.1). After the pent -up demand for consumer durables and investment goods unwinds, domestic demand should grow at a more measured pace. Capacity c onstraints are also i ncreasingly binding, especially in construction. Finally, fiscal policy is forecast to become less pro -cyclical.  
Domestic demand remains the main driver of 
growth.  Strong wage growth, the easing of 
precautionary saving motives and accessible 
financing are fuelling consumption and housing 
investment. Tightening capacity constraints, rising 
labour costs and easy financing conditions are 
encouraging corporate investmen t. Public 
investment as a share of GDP is set to stabilise at a 
high level (see Graph 1.2). The increased 
utilisation of EU funds, which amount to 4  % of GDP annually over the 2014 -2020 cycle, is making 
a significant contribution to investment growth.  
Grap h 1.2: Investment rate by sector (% of GDP)  
 
Source:  Eurostat, European Commission Autumn 2018 
Economic Forecast  
New export capacities are mitigating the impact 
of the international slowdown, but make 
Hungary more vulnerable to disruptions in 
trade flows.  Headwinds from the global economy 
are slowing down export growth. The export 
market share continues to grow thanks to large 
capacity increases. However, new export 
capacities are concentrated in cyclically sensitive 
sectors such as chemicals, car ma nufacturing and 
transport. Therefore the timing of their phase -in, 
and the expected market share gains, may also 
depend on the state of the international business 
cycle. The motor vehicle industry already 
accounted for 4.9 % of gross value added in 2017, 
and even over 7  % taking into account input 
linkages. The increasingly important role of the car 
industry and its suppliers poses a risk for the 
Hungarian economy, because these sectors are 
particularly affected by global trade disputes, and 
by technologica l and regulatory change.  
Labour market  
Labour market performance in Hungary 
continued to improve in line with the generally 
good economic situation.  The activity rate of 
those between 20 and 64 years of age reached a 
record 76 % in 2017, having been on a steadily 
increasing path since 2009 (see Graph 1.3). It may 
-10-8-6-4-202468
030405060708091011121314151617181920%, pps
Change in inventories Investment
Consumption Net exports
Real GDP growthforecast
246810121416
00 02 04 06 08 10 12 14 16 18 20% of GDP
Business Household Publicforecast1. ECONOMIC SITUATION A ND OUTLOOK  
1. Economic situation and outlook  
 
8 continue to increase in the near term, supported by 
the gradual rise of the retirement age and tax 
incentives for employment after retirement (see 
Section 3.2, 3.3). Unemployment, including long -
term and youth unemployment, has fallen below 
pre-crisis levels, and is forecast to decrease further.  
Graph  1.3: Key labour market rates: activity, 
unemployment, long -term unemployment, 
youth unemployment, NEET (%)  
 
(1) NEET rate: Not in employment, education or training (% of 
population), total, ages 15 -24 
Source:  Eurostat  
The labour market continued to tighten.  The 
number of job vacancies exceeded 87  000 in the 
third quarter of 2018, around 20  % more than in 
2017. In parallel, labour reserves, incl uding the 
numbers of part -time employees, unemployed 
people, participants in the Public Work s Scheme 
and certain segments of the inactive population, 
are shrinking. In the fourth quarter of 2018, 89  % 
of manufacturing firms reported labour shortages 
compar ed with the EU average of 21  %. There are 
increasing skills and regional mismatches between 
those seeking work and the jobs on offer  (see 
Section 3.3).  
The tight labour market and government 
measures are fuelling real wage growth.  After 
years of moderatio n, wage growth has been 
accelerating sharply since 2017. Nonetheless, 
average hourly wages in euro terms stood at just 
one-third of the EU average in 2017, and at 60% 
even after adjusting for differences in price levels. 
The government encourages wage conv ergence 
through minimum wage increases in a bid to slow down outward migration. Between 2016 and 2020, 
the minimum wage will have risen by 45% overall, 
while for skilled workers it will have increased by 
63%. Real wage growth is forecast to remain rapid, 
given the tightness of the labour market  and 
continuing minimum wage hikes (see Graph 1.4).  
Graph  1.4: Labour costs and unemployment  
 
(1) Deflated with HICP inflation  
Source:  Eurostat  
Labour costs continue to outpace productivity 
gains.  Although the impact of rapid wage growth 
on labour cost is mitigated by the ongoing 
reduction of employers’ social contributions (see 
Section 3.1), real compensation still outpaces 
labour productivity gains. Unit labour costs are 
growing rapidly both in h istorical comparison and 
relative to trade partners (see Graph 1.5). 
Recovering sales volumes and the 2017 corporate 
income tax cut managed to offset the erosion of 
profit margins in past years. As these supporting 
factors wane, labour costs may add pressu re on 
consumer prices and external competitiveness.  
5860626466687072747678
051015202530
0102030405060708091011121314151617
Activity rate 20-64 (rhs)
Unemployment rate 15-74
Long-term unemployment rate 15-74
Youth unemployment rate 15-24
NEET rate 15-24
0
2
4
6
8
10
12 -6-4-202468101214
00 02 04 06 08 10 12 14 16 18%rate of change y -o-y (%)
Compensation per employee, deflated (1)
Wages and salaries per employee, deflated (1)
Unemployment rate (right axis, reverse scale)
1. Economic situation and outlook  
 
9 Graph  1.5: Unit labour cost growth  
 
Source:  AMECO  
Social developments  
The benefits of growth have not been equally 
distributed . The growth rate of GDP per capita 
during 2010 -2018 averaged about 2.4  %, which is 
slightly higher than the growth rate of per capita 
household income. At the same time, the share of 
income of the top 20  % has increased from 3.4 
times that of the bottom 2 0 % in 2010 to 4.3 in 
2017. This represents a significant increase in 
inequality, even though the ratio remains below the 
EU average of 5.1. There are further challenges 
related to the equality of opportunity. In particular, 
looking at the 2015 Programme f or International 
Student Assessment  (PISA ) scores, the variation in 
Hungarian students’ science results which could be 
attributed to differences in their socio -economic 
background was among the largest in the EU (see 
Section 3.3).  
Inflation and monetary po licy 
Rising production costs and strong demand are 
stoking inflation.  Driven by rising fuel and food 
prices, consumer price inflation in 2018 rose near 
the mid -value of the 3  % ±1 pp. target band of the 
central bank. Inflation excluding these volatile 
items is also on the rise, particularly in the more 
labour -intensive service categories. A broader set 
of measures confirms growing price pressure. The 
GDP deflator was rising by 5  % in the third quarter 
of 2018, while the annual growth rate of construction pr ices accelerated above 10  % in 
autumn 2018.  
Inflation is forecast to remain around the 
central bank target.  Although the impact of 
energy and raw food price increases is set to fade 
in 2019, administrative measures (most notably 
tobacco duty increases) wil l add to inflation. 
Furthermore, amid strong demand, the currency 
depreciation of 2018 and sustained labour cost 
growth can pass through to consumer prices (see 
Graph 1.6).  
Graph  1.6: Contribution to inflation  
 
Source:  Eurostat  
Monetary policy remained  loose in 2018, and 
stimulus is set to be withdrawn only gradually.  
The central bank kept interbank rates at very low 
levels through its liquidity operations. Although 
nominal interest rates increased somewhat in the 
course of the year, rising inflation ke pt real rates 
negative. Other policy measures taken by the 
central bank sent mixed signals. While the central 
bank abandoned tools designed to influence long 
rates, it renewed its Funding for Growth 
programme for small companies, which will 
supply them wit h cheap fixed -rate financing in the 
years to come (see Section 3.2). Increasing 
divergence between global and local interest rate 
expectations contributed to the depreciation of the 
currency in 2018.  
-8-6-4-2024681012
02030405060708091011121314151617181920Rate of change y -o-y (%)
Inflation (GDP deflator growth)
Real compensation per employee
Productivity contribution (negative sign)
Nominal unit labour cost
ULC in 36 industrial competitors of Hungaryforecast
-2-101234567
08091011121314151617181920%
Contribution of energy and unprocessed food
Contribution of other
HICP inflationforecast
1. Economic situation and outlook  
 
10 External position  
The current account surplus is melting  away, 
but the net financing capacity remains positive 
thanks to the inflow of EU funds.  The trade 
balance is decreasing on the back of rising import 
demand and weaker exports. The income balance 
is also set to worsen slightly, mostly driven by the 
profita bility of foreign -owned companies operating 
within Hungary, and a deterioration of the labour 
income balance as the booming economy absorbs 
more cross -border workers from neighbouring 
countries. A nearly balanced current account is 
expected in 2019 -2020, w hich is still higher than 
the medium -term position explained by economic 
fundamentals (European Commission, 2018 a). 
From a sectorial perspective, the lower current 
account is driven by rising private investment, 
which is only partly offset by lower net pub lic 
borrowing. As the rising utilisation of EU funds 
will continue to support the capital account, the 
external financing position will remain positive.  
Graph  1.7: Net international investment position  
 
Source:  Eurostat  
The net international investmen t position 
continued to improve on account of the external 
financing surplus.  In the third quarter of 2018, the 
net position of the government including the 
central bank amounted to -8.4 % of GDP, while 
that of the private sector was -39.1 %. The 
aggregate  position of the economy still exceeds 
prudential benchmarks, albeit to a lessening extent. 
In addition, the net position on defaultable 
instruments, the less stable forms of financing, was 
already nearly balanced at the end of 2017 (see Graph 1.7). Gross external debt fell to near 86  % 
of GDP by mid -2018, almost halving since its peak 
of 156  % in 2010. Besides the process of private 
and public deleveraging and strong nominal GDP 
growth, the increasing reliance of public debt 
management on domestic savers a lso played a role 
in reducing external debt (see also Section 3.1). 
The net inward stock of foreign direct investment 
continued to decrease  in 2017, to 35  % of GDP.  
Public finances  
Fiscal policy turned pro -cyclical in recent years.  
Hungary registered one o f the fastest GDP growth 
rates, above the estimated potential  in 2017 and 
2018. Instead of building public finance reserves 
for bad times, the budget deficit rose from 1.6  % of 
GDP in 2016 to around 2  % in 2018, among the 
highest in the EU . While m ajor tax  bases grew 
faster than GDP , government  spending grew even 
stronger, mainly due to increased public 
investments . Part of the cyclical revenue s was used 
to finance tax cuts on employers’ social 
contributions. In addition, p ublic investments grew  
rapidly, and are forecast to exceed 6  % of GDP in 
2019 -2020. The structural deficit is estimated to 
have risen from 1 ¾ % in 2016  to 3 ¾ % in 2018 . 
In 2018 the Council launched a significant 
deviation procedure addressed to Hungary. The 
structural deficit  is expected to improve by 0.5  % 
in 2019, although  less than what is recommended 
by the Council. The public debt is high for a 
middle income economy, at above 70 % of GDP.  
Financial sector and housing market  
The credit cycle is gaining momentum, spurred 
by easing financing conditions.  Loan demand 
increased amid robust economic growth. Banks 
reduced credit spreads and relaxed non -price credit 
conditions. New lending to corporations and 
households is accelerating briskly, exceeding the 
repayments of existing loans. However, after 
several years of deleveraging, indebtedness levels 
remain low, especially in the household sector (see 
Graph 1.8). The stock of outstanding mortgage 
loans has bottomed out at 7.8  % of GDP in 2017, 
the lowest level in the EU. The macro -prudential 
tools of the central bank have ensured prudent 
household lending practices so far. Policy 
initiatives in recent years have also borne fruit 
through shifting new mortgage lending towards 
loans with long interest rate fixation periods, 
-150-100-50050
000102030405060708091011121314151617% of GDP
Reserve assets
Net portfolio investment
Other investment (net)
Net direct investment
Net Int'l investment position (NIIP)
Marketable debt (NIIP minus FDI and shares)
1. Economic situation and outlook  
 
11 limiting i nterest rate risk in the short term (see also 
Section 3.2).  
Graph  1.8: Financial liabilities by sector (non -
consolidated loans & debt securities, % of 
GDP)  
 
Source:  Eurostat  
The rise in house prices accelerated in 2018, 
leading to overvaluation concerns in some 
market segments.  Real house prices rose 6. 9 % 
annually  in the third quarter of 2018, up from an 
annual average 3.6  % in 2017.  An alternative 
house price index by the central bank signals even 
higher real price increase of 1 1.7% in the third  
quarter of 2018. Sustained income growth and high 
consumer confidence are unwinding pent -up 
demand on the housing market. In addition, low 
interest rates raise the attractiveness of housing as 
an investment asset. Four out of ten property 
buyers repo rt investment motives as the main 
reason for their purchase (MNB, 2018 a). Against 
this background, the past undervaluation of 
housing disappeared after 2016 according to 
standard valuation metrics such as the price -to-
income and price -to-rent ratios. The B udapest 
housing market has already become overvalued 
according to the central bank (see Box 3.2.1).  
The housing cycle has been intensified by the 
temporary reduction of value added tax on new 
housing . Lowering this tax to 5 % from  27 % 
boosted construction  activity . The number of 
completed apartments rose by 28  % in the first 
three quarters of 2018, compared to the same 
period of 2017. The tax reduction was initially due 
to expire in 2020, but it has been extended until 2023 for projects that had already re ceived 
building permits by November 2018. The 
extension came after survey evidence showing 
delays at the majority of construction projects 
because of capacity constraints. These constraints 
are in turn aggravated by the simultaneous, rapid 
growth of public  investments. Meanwhile, the 
uncertainty surrounding the future tax rate caused 
a 6 % drop in the number of new building permits 
in the first three quarters of 2018, foreshadowing a 
period of weaker housing investment after 2020.  
Productivity and potential  growth  
Modest productivity growth limited income 
convergence in the last decade.  In 2017, 
Hungarian GDP per capita stood at 67.8% of the 
EU average, just 7.7 pps higher than a decade 
earlier. Since the crisis, the rising employment rate 
has played a key r ole in the convergence of per 
capita income, while productivity gains have 
lagged behind regional peers (see Graph 1.9).  
Graph  1.9: Convergence of GDP per capita between 
2007 and 2017 (PPS, EU=100)  
 
(1) CEE3: Czech Republic, Poland and Slovakia  
Source:  Eurostat  
 
At the current stage of the economic cycle, high 
investment supports productivity growth.  In the 
next few years, labour productivity is set to 
increase at its fastest rate since the financial crisis, 
albeit still somewhat more slowly than in the pre -
crisis period (see Graph 1.10). Technological 
upgrading through investment can also boost 
estim ated total factor productivity growth. The 
recovery of lending after a long deleveraging 
period should facilitate the expansion of 
050100150200
02Q4
03Q4
04Q4
05Q4
06Q4
07Q4
08Q4
09Q4
10Q4
11Q4
12Q4
13Q4
14Q4
15Q4
16Q4
17Q4% of GDP
Government
Household
Non financial corporations
Private non-financial sector
50556065707580
Hungary CEE3GDP per capita (% of EU average)
GDP per capita in 2017 relative to EU average
Effect of change in labour productivity between 2007 and 2017
Effect of change in employment rate between 2007 and 2017
GDP per capita in 2007 relative to EU average
1. Economic situation and outlook  
 
12 companies with a high growth potential (Duval et 
al., 2017). However, persistently easy corporate 
financing conditions also c reate risks, because 
credit tends to flow disproportionately to firms 
with more collateral, but not necessarily higher 
productivity, resulting in capital misallocation 
(Cecchetti -Kharroubi, 2015, Gopinath et al., 2017; 
see also Section 3.2).  
Graph  1.10:  Contributions to potential growth  
 
Source:  European Commission Autumn 2018 Economic 
Forecast  
Microeconomic factors continue to constrain 
productivity growth and long -term 
convergence.  Low innovation activity and 
inadequate management practices hold back 
productivity growth within individual firms. The 
regulatory environment slows down the 
reallocation of resources towards more productive 
companies (see Section 3.4). These structural 
factors are reflected in the moderate rate of 
estimated total factor productivity growth, and in 
relatively slow economic convergence over the 
longer term (see Graph 1.10).  
In view of the ageing population, productivity is 
set to play an even more important role in long -
term growth.  Without new measures to encourage 
participation, the labour force is set to start 
shrinking in the next decade as a result of 
demographic trends (see Section 3.2).  Regional disparities  
Regional disparities remain prominent despite  
some convergence.  The capital city plays an 
extraordinarily important role in the economy, 
accounting for 18  % of population and 36  % of 
GDP. In fact, its income per capita even exceeds 
the EU average by 36  %. It is surrounded by the  
much less developed Pest county, whose income 
level remains  at 54  % of EU average, and which is 
itself divided into a thriving commuting zone 
around the capital and a struggling hinterland. 
Among the remaining regions, Western and 
Central Transdanubia are relatively more 
devel oped. The more rapid income convergence 
they experienced over the last decade was a result 
of significant foreign direct investment into 
manufacturing. The remaining four regions are 
among the least developed regions in the entire 
EU, and have experienced virtually no 
convergence in the last decade (see Graph 1.11). 
Over 10% of their workforce is still employed in 
agriculture, while their industrial productivity lags 
significantly behind the national average. They are 
relatively poorly endowed with human ca pital and 
transport infrastructure. Income differences also 
persist between urban and rural territories.  Income 
per capita is significantly lower in rural than in 
urban areas (45  % v ersus 141  % of the EU 
average) and the difference between them is high 
in European comparison (European Commission, 
2017 a).  
Graph  1.11:  Regional GDP per capita based on purchasing 
parity (% of EU average)  
 
Source:  Eurostat  
 
-101234
05 07 09 11 13 15 17 19 21 23Rate of change y -o-y (%)
Capital accumulation contribution
TFP contribution
Labour contribution
Potential growthforecast
020406080100%
2000 2008 2016
1. Economic situation and outlook  
 
13    
Table  1.1: Key economic and financial indicators - Hungary  
 
(1) NIIP excluding direct investment and portfolio equity shares         
(2) domestic banking groups and stand -alone banks, EU and non -EU foreign -controlled subsidiaries and EU and non -EU 
foreign -controlled branches.         
(3) The tax -to-GDP indicator in cludes imputed social contributions and hence differs from the tax -to-GDP indicator used in the 
section on taxation.  
Source:  Eurostat and ECB as of 31 -1-2019, where available; European Commission for forecast figures (Winter forecast 2019 for 
real GDP and HICP, Autumn forecast 2018 otherwise)  
 
2004-07 2008-12 2013-15 2016 2017 2018 2019 2020
Real GDP (y-o-y) 3,4 -1,1 3,3 2,3 4,1 4,8 3,4 2,6
Potential growth (y-o-y) 2,9 0,2 1,8 2,1 2,8 3,2 3,4 3,1
Private consumption (y-o-y) 2,0 -2,4 2,3 4,0 4,8 . . .
Public consumption (y-o-y) -0,1 0,6 3,5 0,7 1,3 . . .
Gross fixed capital formation (y-o-y) 4,0 -4,3 8,9 -11,7 18,2 . . .
Exports of goods and services (y-o-y) 16,6 2,0 6,8 5,1 4,7 . . .
Imports of goods and services (y-o-y) 13,6 0,1 7,1 3,9 7,7 . . .
Contribution to GDP growth:
Domestic demand (y-o-y) 2,0 -2,1 3,7 -0,5 6,2 . . .
Inventories (y-o-y) -0,1 -0,5 -0,7 1,4 -0,2 . . .
Net exports (y-o-y) 1,5 1,6 0,3 1,4 -1,9 . . .
Contribution to potential GDP growth:
Total Labour (hours) (y-o-y) -0,4 -0,5 1,1 1,3 0,9 0,8 0,5 0,4
Capital accumulation (y-o-y) 1,4 0,6 0,8 0,5 1,0 1,4 1,6 1,4
Total factor productivity (y-o-y) 1,9 0,1 0,0 0,4 0,8 1,1 1,3 1,3
Output gap 2,5 -2,7 -1,2 0,4 1,7 2,8 2,9 2,4
Unemployment rate 7,1 10,2 8,2 5,1 4,2 3,6 3,3 3,2
GDP deflator (y-o-y) 4,1 3,4 2,7 0,9 3,8 3,7 3,3 3,0
Harmonised index of consumer prices (HICP, y-o-y) 5,5 4,9 0,6 0,4 2,4 2,9 2,8 3,0
Nominal compensation per employee (y-o-y) 7,3 2,4 0,3 4,4 6,2 8,1 6,6 6,2
Labour productivity (real, person employed, y-o-y) 3,6 0,0 0,5 -0,7 2,1 . . .
Unit labour costs (ULC, whole economy, y-o-y) 3,6 2,4 -0,2 5,2 4,1 4,5 3,5 3,6
Real unit labour costs (y-o-y) -0,5 -1,0 -2,8 4,3 0,2 0,8 0,2 0,6
Real effective exchange rate (ULC, y-o-y) 2,7 -2,6 -3,4 3,9 4,1 0,1 0,9 1,4
Real effective exchange rate (HICP, y-o-y) 3,1 -0,8 -2,4 0,8 1,7 -0,4 0,4 0,8
Savings rate of households (net saving as percentage of net disposable 
income) 6,9 5,5 7,1 8,1 7,3 . . .
Private credit flow, consolidated (% of GDP) 13,3 0,8 -1,2 -3,0 0,9 . . .
Private sector debt, consolidated (% of GDP) 81,6 110,6 90,4 77,9 71,4 . . .
of which household debt, consolidated (% of GDP) 24,8 36,4 24,9 20,3 18,8 . . .
of which non-financial corporate debt, consolidated (% of GDP) 56,8 74,2 65,4 57,5 52,6 . . .
Gross non-performing debt (% of total debt instruments and total loans 
and advances) (2) . 9,8 13,1 8,1 5,6 . . .
Corporations, net lending (+) or net borrowing (-) (% of GDP) -2,8 2,1 3,6 3,3 2,9 3,5 3,4 2,6
Corporations, gross operating surplus (% of GDP) 22,4 23,0 25,0 24,6 25,1 24,9 25,2 24,8
Households, net lending (+) or net borrowing (-) (% of GDP) 2,2 3,0 5,4 4,5 3,6 2,3 1,1 1,7
Deflated house price index (y-o-y) . -6,9 3,9 13,6 3,3 . . .
Residential investment (% of GDP) 4,4 3,1 2,0 2,4 2,8 . . .
Current account balance (% of GDP), balance of payments -7,4 -1,0 2,7 6,2 3,2 1,3 1,2 1,1
Trade balance (% of GDP), balance of payments -1,2 4,5 7,2 10,0 7,5 . . .
Terms of trade of goods and services (y-o-y) -0,7 -0,5 0,7 1,1 0,0 -0,4 -0,7 0,0
Capital account balance (% of GDP) 0,5 1,9 4,0 0,0 1,0 . . .
Net international investment position (% of GDP) -89,4 -104,9 -77,0 -58,5 -52,9 . . .
NIIP excluding non-defaultable instruments (% of GDP) (1) -33,8 -49,0 -28,0 -11,9 -8,1 . . .
IIP liabilities excluding non-defaultable instruments (% of GDP) (1) 75,2 112,3 86,8 70,8 62,5 . . .
Export performance vs. advanced countries (% change over 5 years) 47,1 13,7 -12,2 -3,2 6,3 . . .
Export market share, goods and services (y-o-y) . . 2,0 5,4 -0,5 . . .
Net FDI flows (% of GDP) -2,5 -1,6 -1,7 -2,3 -1,3 . . .
General government balance (% of GDP) -7,2 -4,1 -2,4 -1,6 -2,2 -2,4 -1,9 -1,8
Structural budget balance (% of GDP) . . -1,8 -1,8 -3,4 -3,7 -3,2 -2,9
General government gross debt (% of GDP) 62,3 77,7 76,8 75,9 73,3 72,9 70,3 68,6
Tax-to-GDP ratio (%) (3) 37,4 38,2 38,3 39,3 38,4 37,6 37,3 37,2
Tax rate for a single person earning the average wage (%) 35,6 35,5 34,5 33,5 . . . .
Tax rate for a single person earning 50% of the average wage (%) 19,6 26,4 34,5 33,5 . . . .forecast
 
 
14 Since the start of the European Semester in 
2011, 60  % of all Country Specific 
Recommendations addressed to Hungary have 
recorded at least ‘some progress ’. 40 % of the 
recommendations recorded ‘limited ’ or ‘no 
progress ’ (see Graph 2.1).  Substantial progress has 
been achieved in the financial sector, for instance 
improving the asset quality of the banks and access 
to finance.  
Graph  2.1: Overall multiannual implementation of 2011 -
2018 CSRs to date  
 
(1) The overall assessment of the coun try-specific 
recommendations related to fiscal policy excludes 
compliance with the Stability and Growth Pact.  
2011 -2012: Different CSR assessment categories.  
The multiannual CSR assessment looks at the implementation 
since the CSRs were first adopted unt il the 2018 Country 
Report.  
Source:  European Commission  
Since 2011 the government has achieved 
considerable progress in strengthening public 
finances.  It has implemented measures including 
structural reforms to reduce the budgetary deficit 
below 3  % of GDP. As a result, in 2013, the 
decision on the existence of an excessive deficit 
was abrogated. However, since 2016, the structural 
deficit has deteriora ted and in 2018 the Council 
concluded that it deviated significantly from its 
medium -term budgetary objective.  
The labour market situation has improved 
considerably since 2011 supported by the 
measures implemented by the government.  
Since the launch of the  European Semester, a 
number of recommendations on labour taxation, 
tax compliance, active labour market policies, 
education and social assistance  were issued . In the last eight years, the authorities have taken several 
measures to reduce the tax burden on  labour. The 
tax wedge has been reduced, especially for 
families and selected groups. However, it remains 
high, in particular for single low -income earners. 
There has been some progress with active labour 
market policies. For years, the authorities ’ main 
focus was the Public Works Scheme, despite its 
limited efficiency. Recently, the number of 
participants in the Scheme has declined markedly, 
reflecting improving labour market conditions.  
Digitalisation in taxes and public procurement 
has improved the busi ness environment.  
Hungary has received recommendations to 
improve the business environment every year since 
the European Semester started . Recommendations 
cover several fields, including: administrative 
burden; public procurement; the legislative 
process; competition; the regulatory environment; 
and corruption. While the complex tax system and 
high compliance cost remains a challenge for 
firms, several promising measures were developed 
building on digitalisation. The authorities 
implemented an e -procurement  system to improve 
transparency and boost competition in public 
procurement.  
The quality of banking sector assets has greatly 
improved and lending activity has picked up.  
Between 2013 and 2015 Hungary received yearly 
recommendations to take measures to res tore 
lending to the real economy , to reduce burdens on 
banks and to improve asset quality. Since then, the 
banking tax has been reduced significantly and the 
level of non -performing loans held by banks has 
dropped considerably.  
Following the 2016 country report and the in -
depth review, Hungary is no longer deemed to 
experienc e macroeconomic imbalances.  Since 
2016 , the economy has experienced a strong 
recovery. External imbalances have been 
significantly reduced and the public debt ratio has 
declined since the beginning of the decade. The 
indicators of the net international investment 
position have rapidly improved.  However, there 
have recently been indications that the economy is 
heating up, which warrants close monitoring.  
No Progress
8%
Limited Progress
32%
Some Progress
30%Substantial 
Progress
15%Full 
Implementation
15%2. PROGRESS WITH COUNTR Y-SPECIFIC RECOMMENDAT IONS  
2. Progress with country -specific recommendations  
 
15 Hungary has made  limited progress in 
addressing the 2018 country -specific 
recommendations  (see Table 2.1). Some progress 
has been made in reducing the complexity of the 
tax system and unlocking labour reserve. Progress 
has been limited in increasing the participation of 
disadvantaged groups, in particular Roma, in 
inclusive mainstream education and in improving 
the adequacy and coverage of social assistance and unemployment benefits. Limited progress has been 
made in improving transparency and boosting 
competition in publi c procurement. There has been 
no progress towards improving the anti -corruption 
framework and strengthening prosecutorial efforts, 
improving the regulatory environment in services 
or improving the quality and transparency of 
decision -making, including the social dialogue.   
Table  2.1: Assessment of the implementation  of 2018 country -specific recommendations  (CSR)  
 
Source:  European Commission  
 
Overall assessment of progress with 2018 CSR:  Limited progress  
CSR1:  
In 2018, ensure compliance with the Council 
recommendation of 18 June 2018 with a view to 
correcting the significant deviation from the 
adjustment path toward the medium -term budgetary 
objective. In 2019, ensure that the nominal growth 
rate of net primary government expenditure does not 
exceed 3.9 %, corresponding to an annual structural 
adjustment of 0.75 % of GDP.  CSRs related to compliance with the Stability and 
Growth Pact  will be assessed in spring once the 
final data are available.  
CSR2 : 
Continue simplifying the tax system, in particular by 
reducing sector -specific taxes. Improve the quality 
and transparency of the decision -making process 
through effective social dialogu e and engagement 
with other stakeholders and by regular, adequate 
impact assessments. Reinforce the anti -corruption 
framework, strengthen prosecutorial efforts and 
improve transparency and competition in public 
procurement inter alia through further develo ping 
the e -procurement system. Strengthen competition, 
regulatory stability and transparency in the services 
sector, in particular in retail.  Limited  progress   
 Some progress has been made in reducing the 
complexity of the tax structure .  
 No progress made in improving the quality of 
decision making.  
 No progress has been made on strengthening 
anti-corruption framework and prosecution.  
 Limited  progress has been made on 
strengthen ing transparency and co mpetition in 
public procurement.  
 No progress has been made on improving the 
regulatory enviro nment in the services sector . 
 
CSR3 : 
Unlock labour reserves through improving the 
quality of active labour market policies. Improve 
education outcomes and increase the participation 
of disadvantaged groups, in particular Roma, in 
quality and inclusive mainstream education. 
Improve the adequacy and coverage of social 
assistance and unemployment benefits.  Limited  progress   
 Some progress  has been made to unlock labour 
reserve . 
 Limited progr ess has been made to improve 
educational outcomes and to increase the 
participation of disadvantaged groups, in 
particular Roma, in inclusive mainstream 
education.  
 Limited progress has been made in improving  
the adequacy and coverage of social assistance 
and unemployment benefits . 
 
 
2. Progress with country -specific recommendations  
 
16 Box 2.1 : EU  funds and programmes contribute to addressing help overcome structural 
challenges  and to  fostering growth and competitiveness development in Hungary  
Hungary is one of the main beneficiaries of EU solidarity.  European Structural and Investment Funds 
(ESI Funds) aimed to support Hungary in facing development challenges, amount to EUR 2 5 billion under 
the current Multiannual Financial Framework, equivalent to around 2.9  % of GDP annually or around 
53.6 % of all public investment per year on average. At the end of 2018, 10 4 % of the available budget was 
committed to specific projects. In addition, EUR 1.1 b illion was allocated to projects on strategic transport 
networks through a dedicated EU funding instrument, the Connecting Europe Facility. Furthermore, a 
number of Hungarian research institutions, innovative firms and individual researc hers benefited from other 
EU funding instruments, notably Horizon 2020 which provided EUR 212 m illion. The Fund for European 
Aid to the Most Deprived provides almost EUR 93 m illion to support the most vulnerable in Hungary.  
EU funding has helped to address  policy challenges also identified in previous CSRs.  European Social 
Fund supported public education (including combatting early -school leaving and exclusion ) and to the 
reduction of labour market mismatches (through enhancing the employability of disadvan taged groups, 
vocational education and training and lifelong learning). By October 2018, more than 88  000 adults had 
participated in dedicated trainings. Hungary received support from the Youth Employment Initiative to 
combat youth unemployment, benefittin g over 40  000 young people to date. Early childhood care and social 
inclusion measures especially for Roma are further important areas for investment. By the end of 2018, the 
European Agricultural Fund for Rural Development (EAFRD) improved the competitive ness of 9  054 
agricultural holdings. The European Regional Development Fund (ERDF) supported closer collaboration 
between business and research institutions, improved research infrastructures and R&D investments in the 
private sector. By the end of 2018, E SI Funds supported capacity building in over 16  000 firms and helped 
700 firms introduce new products in their markets. By 2018, investments mainly driven by the ERDF and 
the Cohesion Fund have led to building or modernisation of 268 km of roads and 321 km  of railways, and 
improved water supply for 700  000 people.  
In addition, the Commission can provide tailor -made technical support upon a Member State's 
request via the Structural Reform Support Programme to help Member States implement growth -
sustaining r eforms to address challenges identified in the European Semester process or other 
national reforms. In Hungary, for example, the Commission is assisting the authorities in their efforts to 
contribute to the integration of capital markets by linking the Hun garian Central Securities Depository with 
other central securities depositories in Central and Eastern Europe. Additional support will soon start to 
improve the quality and cost -effective accessibility to primary care services and ambulatory surgeries.  
EU funding contributes to the mobilisation of private investment.  While private beneficiaries of EU 
grants pay a part of the investment and therefore mobilise additional funding, financial instruments are a 
useful tool for achieving higher leverage. ESI Fund s allocate about EUR 2.3 b illion in the form of loans, 
micro -loans, guarantees and equity, supporting investments on R&D, innovation, information and 
communication technology, energy efficiency, and social investments. In Hungary, financing under the 
Europ ean Fund for Strategic Investments (EFSI) amounts to EUR 54 8 million , and is set to trigger EUR 2.4 
billion in additional private and public investments. Hungary ranks 1 0th as to the volume of approved 
operations as a share of GDP. Under the Infrastructure  and Innovation window, 5 projects involving 
Hungary and financed by the E uropean Investment Bank with EFSI backing were approved, worth about 
EUR 4 20 million and triggering EUR 1 b illion investment. Under the window  for small and medium sized 
enterprises , 9 agreements were approved with intermediary banks or funds financed by the EIF with EFSI 
backing, for a total of EUR 128 m illion. The latter has triggered EUR 1.4 b illion in investments with some 
12 000 companies expected to benefit from improved access to finance.  
EU actions strengthen national, regional and local authorities and the civil society.  EUR 523 m illion 
has been allocated for modernising public administrations at different levels. Additionally, with EUR 172 
million the EAFRD through 103 Local  Action Groups provide rural communities in Hungary with a method 
for involving local partners in steering the future development of their area.  
https://cohesiondata.ec.europa.eu/countries/HU  
 
 
17 3.1.1.  TAXATION  
Hungary’s relatively high tax -to-GDP ratio has 
decreased.  In 2017, it stood at 38.3  % of GDP, 
after dropping by 1 percentage point from 2016. It 
is 0.8 pps below the EU average, but well above 
the level of regional peers. In EU comparison, the 
share of revenues from labour taxation is low and 
decreasing, while  the weight of consumption taxes 
is high and increasing further. Environmental tax 
revenues st ood at 2. 5 % of GDP in 201 7, near the 
EU average. However, there is no CO 2 emissions -
based vehicle tax, and the value added tax  rate on 
energy has been cut. Revenues from recurrent 
property taxes and capital income tax are markedly 
below the EU average.  
Graph  3.1.1:  Tax wedge of a single worker earning 67% of 
average wage  
 
(1) JPA: employees in jobs which required no qualifications 
and for agricultural workers  
Source:  European Commission  based on OECD data  
The high tax burden on labour has decreased.  
Employers’ social contribution rates were lowered 
by a total of 7.5 pps in 2017 -2018, reducing the tax 
wedge by about 3 pps. Despite these measures, the 
tax burden on labour remains high for low -income 
earners. In 2017, the tax wedge for singles without 
children at any income level stood at 46.2  %, 
which exceeded the EU average by 14 and 8 pps 
for those earning 50% and 67% of average wage 
respectively. The tax wedge for high -income earners is close to the EU average, reflecting the 
flat personal income tax  rate. The flat design 
reduces work incentives for low wage earners and 
raises equity concerns. There are progressive 
elements for families with children. In particular, 
child tax credit substantially reduces the tax 
burden for low -income households with c hildren. 
However, the tax wedge remains above the EU 
average for these households as well. Employers’ 
social contribution is set to be reduced by 
additional 2 pps in 2019. In addition, the 
framework of social contribution allowances was 
renewed as of Janua ry 2019 in order to better 
target benefits towards new entrants and the low 
skilled (see Graph 3.1.1).  
Sector -specific taxes and a large number of 
small taxes complicate the tax system. Sector -
specific taxes raise concerns because they create 
distortions and weaken the investment climate in 
general. They also risk creating an uneven playing 
field for businesses. The tax system operates about 
60 different taxes, many of which are small and 
generate administrative burden. Recently, some 
minor taxes, such as the cultural tax, were phased 
out, while others were merged. In 2019, the upper 
rate of the bank levy was lowered further from 
0.21 % to 0.2  %, and it will cease to apply to 
investment companies.  
Some goods and services are simultaneously 
subject to reduc ed value added tax rates  and to 
additional sector -specific levies.  This makes the 
tax system even more complex and has 
counter balancing  effects. The government justifies 
the use of reduced value added tax rates on the 
grounds of tax compliance and fairness  
considerations. However, these goals can be served 
more directly and in a more targeted way through 
other measures, including better tax collection and 
income redistribution (OECD, 2014).  
Hungary is continuing its efforts to reduce high 
compliance costs.  Medium -sized companies had 
to spend 277 hours a year to meet main tax 
obligations in 2017, which was among the highest 
in the EU. This represents a drop of 53 hours 
compared to 2007, mostly because of a reduction 
in the time spent on corporate income tax 
obligations (WB -PWC, 2019). The introduction of 
3032343638404244464850
2015 2016 2017 2018 2019& of labour cost
Standard case JPA
New Entrants' Allowance EU average3. REFORM PRIORITIES  
3.1. PUBLIC FINANCES AND TAXATION  
3.1. Public finances and taxation  
 
18 group taxation for corporate income tax purposes 
from 2019 is likely to cut businesses’ compliance 
costs further, particularly because it may be 
applied together with value added tax group and 
accounting cons olidation to enhance centralisation.  
Measures to reduce tax abuse produced 
significant revenue yields.  The introduction of 
online cash registers from 2014 helped boost value 
added tax revenues. In addition, a system of online 
invoicing was introduced in 2 018, which enables 
business -to-business invoices to be monitored in 
real time. Partly as a result of these measures, the 
value added tax gap (i.e. revenue loss relative to 
total tax liability) fell from 21  % in 2013 to 13  % 
in 2016, close to the EU average  (CASE et al., 
2018). This trend is set to continue, as the higher 
value added tax revenue figures for 2018 suggest.  
High capital flows through special vehicles, 
coupled with the absence of withholding taxes 
may indicate that Hungary’s tax rules are used 
by companies that engage in aggressive tax 
planning.  Hungary records relatively high capital 
inflows and outflows through special purpose 
entities, which have no or little effect on the real 
economy (OECD, 2016). The absence of 
withholding taxes on dividen d, interest and royalty 
payments made by companies based in Hungary 
may lead to those payments escaping tax 
altogether, if they are also not subject to tax in the 
recipient jurisdiction, potentially facilitating 
aggressive tax planning (ZEW, 2016).  
Hungary is acting to curb aggressive tax 
planning by implementing EU and 
internationally agreed initiatives.  In 2019, some 
provisions of the Anti -Tax Avoidance Directive, 
such as interest limitation rules, have been  
introduced, while controlled foreign com pany rules 
have been  extended. Other provisions like the anti -
hybrid and exit tax rules will be introduced from 
2020. In the context of the Base Erosion and Profit 
Shifting project, a minimum level of protection 
against treaty abuse has been developed and is 
embedded in the Multilateral Instrument articles. 
Hungary has signed this agreement in 2017, but 
has put reservations on many articles. It is still too 
early to assess the impact of the measures 
implemented. It remains important to assess the 
extent to which new measures will limit the scope 
for aggressive tax planning in Hungary.  3.1.2.  QUALITY OF PUBLIC EX PENDITURE  
Government expenditures remain high er than 
in regional peers . The primary expenditure -to-
GDP ratio, excluding interest costs, remains close r 
to the EU average (see Graph 3.1.2). The 
underlying expenditure trend, which excludes EU 
transfers from primary spending, has followed an 
opposite pattern to that in the EU. It decreased by 
5 pps between 2006 and 2012, primarily as the 
result of containe d spending on social transfers and 
the public wage bill. However, the reduction of 
spending is being reversed and the underlying 
expenditures -to-GDP ratio has been rising since 
2013. In contrast, other EU countries raised their 
expenditure ratio during the  crisis, but reduced it in 
recent years as their economies recovered. With 
one of the highest economic growth rates in the 
EU, Hungary needs to build stronger fiscal buffers 
in order to prepare its economy for future potential 
risks stemming from lower eco nomic growth.  
Graph  3.1.2:  Trends in primary expenditure (% of GDP)  
 
(1) CEE3: Czech Republic, Poland, Slovakia  
Source:  European Commission  
Public spending on human capital accumulation 
is low.  Health expenditures are markedly lower 
than the EU and regional average (see Graph 
3.1.3), and even declined in the last decade, 
contrary to increasing trends across the EU. The 
largest fall occurred in the pharmaceutical budget, 
reflecting a series of co st-containment measures.  
Recent reviews of the State Audit Office have 
revealed the low efficiency of spending by public 
healthcare providers. Total spending on education 
3839404142434445464748
02030405060708091011121314151617% of GDP
Hungary
Hungary without EU funds
EU average
CEE3
3.1. Public finances and taxation  
 
19 as a share of GDP is close to the EU and regional 
average . However , complementary sta tistics rank 
Hungary among the last in the EU on every 
education level, and also in terms of expenditure 
per student (OECD, 2018 a). Low spending 
contributes to weak health and education 
outcomes, which are a key challenge to long -run 
economic growth (see S ection 3.3).  
Graph  3.1.3:  Breakdown of general government spending, 
three year average (2014 -2016)  
 
(1) CEE3: Czech Republic, Poland, Slovakia  
Source:  Eurostat COFOG statistics  
Spending on economic affairs, public 
administration, debt service, sport, culture and 
religion is comparatively high  (see Graph 3.1.3). 
Expenditure on economic affairs has risen 
noticeably, well above the EU average since 2010. 
This development is linked to increased state 
involvement in the economy, the extension of the 
Public Works Scheme and high infrastructural 
investment. Spending on general public services is 
also well above the EU and regional average 
owing to the higher wage and operational costs of 
executive and legislative organs, external, financial 
and fiscal affairs. Spending on sport, cu lture, 
broadcasting and religion relative to GDP was 
more than three times as much as the EU average 
in 2016. Debt service costs have fallen markedly 
over the last decade, but remain high compared to 
other EU countries as the relatively high debt ratio 
is coupled with one of the highest implicit interest 
rates.  3.1.3.  DEBT SUSTAINABILITY ANALYSIS AND 
FISCAL RISKS  
Hungary’s public debt ratio has been declining 
since 2011, but remains high for a middle -
income economy.  In 2017, it further decreased to  
73.3 %, having fallen by more than 7 pps from its 
peak in 2011. Debt reduction was initially driven 
by successive primary surpluses, but since 2017 it 
has been led mainly by high nominal GDP growth. 
The takeover of mandatory second -pillar private 
pension assets by  the state, amounting to about 
10 % of GDP, also supported the debt reduction. 
The revaluation of foreign -currency -denominated 
debt increased the debt ratio by 4.9  % of GDP 
between 2011 and 2017. Over the same period, the 
central bank made a cumulative pro fit of around 
4 % of GDP on currency transactions, of which  
0.2 % was used to reduce debt.  
Domestic actors play an increasing role in debt 
financing.  To reduce the adverse impact of 
currency depreciation on public debt, Hungary cut 
the proportion of fore ign-currency -denominated 
debt from above 50  % to about 20  % between 2011 
and 2017. In parallel, the share of domestic -owned 
debt also increased markedly. To facilitate this 
process, new types of bonds were issued for 
households, offering a higher interest  of 200 -300 
basis points above the rates available for 
institutional investors. In 2018, these retail 
securities already accounted for 25  % of public 
debt, significantly adding to  debt servicing cost.  
The debt trajectory could deteriorate  in the 
medium term  without further fiscal adjustment . 
The debt ratio is projected to fall by more than 
4 pps over 2018 -2020 due to the continuing 
decline in interest outlays and fast nominal GDP 
growth. In the medium term however, the debt 
ratio is projected to stagnate jus t below 70  % in a 
no-policy -change scenario  (see Graph 3.1.5) 
(European Commission, 2019). The closing of the 
positive output gap increases the primary deficit, 
which is only partly offset by declining age -related 
public expenditure, reflecting savings on the 
parametric pension reform. The debt -increasing 
impact of the primary deficit is calculated to be 
offset by a modestly favourable snowball effect. 
Using a higher deflator in the calculations, which 
would be more in line with the central bank’s 3  % 
inflation target, would imply a faster reduction in 
the medium term. If the structural balance was 
02468101214161820
Economic
affairsSport,
culture,
religionGeneral
public
servicesInterest
costsEducation Health Social
protection% of GDP
Hungary EU average CEE3
3.1. Public finances and taxation  
 
20 gradually improved to the Hungary’s medium -term 
objective, the debt ratio would fall below 60  % by 
2028 (see Graph 3.1.5).  
Graph  3.1.4:  Gross government debt rat io: the baseline 
scenario and alternative trajectories  
 
Source:  European Commission  
No significant risks of fiscal stress are foreseen 
in the short term.  However, some fiscal variables 
in the Commission’s assessment framework point 
to possible short -term challenges, in particular the 
low primary balance, high share of short -term 
debt, gross financing needs and relatively high 
yield spreads, especially if there were to be a rapid 
change in the financial markets’ perceptions , could 
deteriorate public fina nces in the future . 
Fiscal sustainability risks are high in the longer 
term.  The structural primary balance should 
improve by 1.1 pps of GDP over 5 years relative to 
the ‘no -policy -change’ scenario, in order to bring 
the debt ratio to the 60  % reference va lue by 2033. 
The upfront fiscal adjustment ensuring that the 
debt ratio would not move on an ever -increasing 
path, amounts to 4.1  % of GDP . This reflects the 
increasing ageing related costs in the long term. 
Spending on pensions and healthcare is projected 
to increase by 2.3 % of GDP between 2016 and 
2070 (European Commission, 2018 b). The se 
indicators imply medium risks. The level of risks 
increases to high in alternative scenarios, in 
particular when consideri ng a rise in interest rates.  3.1.4.  FISCAL FRAMEWORK  
The mandate of the Fiscal Council has been 
extended by recent measures, but its analytical 
remit remains narrow.  In July 2018, the 
Economic Stability Act was amended, extending 
the Council’s monitoring mandate to cover the 
domestic nominal and structural budget balance 
rules. This step means that the Fiscal Council is to 
check compliance with all national numerical 
rules, in line with the provisions of the Budgetary 
Frameworks Directive. Even before this legislative 
change, in June 2018, the Council  had, for the first 
time, at its own initiative, issued an opinion on the 
2017 budgetary execution, which included an e x 
post assessment of compliance with all domestic 
rules in force. Although these reforms are steps in 
the right direction, an imbalance persists between 
the narrow analytical remit of the Fiscal Council, 
in particular as regards fiscal issues outside the 
annual budget -making cycle, and its 
constitutionally enshrined veto right.  
There has been noteworthy progress with the 
rollout of the medium -term budgetary 
framework, but it still does not genuine ly guid e 
fiscal planning.  A key feature of the Hungarian 
mechanism is that differences between the 
medium -term expenditure and revenue plans for 
budgetary chapters (laid down in a government 
resolution by end -December in year t -1) and the 
draft budget for year t+1 must be formally justified 
in the budget documentat ion. Since the first 
application of this requirement in 2016, when the 
written justifications for such differences were 
often unavailable, there has been remarkable 
progress. The explanations that have been 
provided more recently are numerically detailed 
and the differences are generally smaller in most 
budgetary chapters. Still, even a rigorous 
implementation of this provision would imply that 
the controlling role of medium -term plans is 
limited as the explanatory requirement concerns 
only the appropriatio ns for year t+1 and plans for 
later years can be revised freely in a new 
resolution (3). 
                                                           
(3) In November 2018, the Public Finance Act was also 
amended. It now stipulates that national medium -term 
fiscal plans must include an assessment o f the 
sustainability of any major policies envisaged . It must also 
cover  their direct long -term budgetary impacts.  
505560657075808590
1314151617181920212223242526272829% of GDP
No-policy change scenario without ageing costs
Stability and Growth Pact scenario
Baseline no-policy change scenario
 
 
21 Strong economic growth supports the resilience 
of the banking sector.  New lending has picked 
up, backed by improved borrowers’ confidence 
and demand on the part of borrowers, as well as 
banks increasing willingness to lend. Banks 
comfortably meet liquidity and capital ade quacy 
requirements. Their profitability improved further 
up to the first half of 2018, albeit largely thanks to 
one-off items. While the ratio of non -performing 
loans continued to decrease last year, it remains 
high compared to the EU average, as do banks’  
operating costs. The state maintains a strong 
presence in the financial sector.  
 
Graph  3.2.1:  Credit growth  
 
Source:  ECB 
Banking sector assets are expanding as new 
lending picks up.  In the third quarter of 2018, the 
balance sheet of monetary financial institutions 
grew by 7.2% y -o-y. The loan stock of both large 
corporations and small and medium sized 
enterprises grew by 14  %, while household loans 
were up by 5  % (based on transactio ns; see also Chart 3.2.1). Banks have increased their exposure 
to state by expan ding their holdings of government 
bonds. Their share in the sector’s assets has risen 
from around 12  % in 2012 to 22  % in the third 
quarter of 2018, the highest in the EU. This  
process has been encouraged by various central 
bank programmes over the past years.  
Lending conditions are easing, but credit 
standards have remained prudent overall.  Loan 
to value ratios of new mortgage loans have been 
stable near 55  % while strong incom e growth 
keeps borrowers’ payment -to-income ratio in 
check. The central bank considerably tightened the 
latter ratio for flexible rate loans from October 
2018. Following the introduction of the Certified 
Consumer Friendly Housing Loans scheme in 
2017, cons umers chose fixed -interest rates housing 
loans more frequently than variable ones – in 
contrast to previous years – to lock in the currently 
low interest rate levels. Contrary to household 
lending, risks of foreign currency lending persist in 
the commercia l real estate segment: 82  % of the 
portfolio is euro denominated, with similar shares 
registered in new lending. These projects continue 
to run unhedged currency risk because , even 
though rental fees are listed in euros, a large 
proportion of tenants earn revenues in forints 
(MNB, 2018b ). 
The widespread availability of financing eases 
investment barriers, but can also lower their 
efficiency.  Both real borrowing costs and non -
price lending conditions have eased. In addition, 
several public programmes offer f inancing on 
favourable terms from both EU and national 
sources. Despite the expiry of the Funding for 
Growth Scheme in 2017, the central bank decided 
to launch a fourth round of the scheme in January 
2019 with a total budget of around EUR 3 bn to 
-25-20-15-10-5051015rate of change y -o-y (%)
Total private  Non-financial corporations
Households Mortgage credit3.2. FINANCIAL SECTOR  
 
Table  3.2.1:  Financial soundness indicators, all banks in Hungary  
 
* ECB aggregated balance sheet: loans excl to gov and MFI / deposits excl from gov and MFI  
** For comparability only annual values are presented  
Source:  ECB CBD  
 
(%) 2010 2011 2012 2013 2014 2015 2016 2017 2018Q2
Non-performing debt 10,9 12,8 14,1 14,0 14,2 11,0 8,1 5,6 5,0
Non-performing loans - - - - 19,4 15,2 11,9 8,4 6,7
Non-performing loans NFC - - - - 26,0 23,4 15,5 9,8 7,1
Non-performing loans HH - - - - 26,6 20,4 17,5 12,2 11,7
Coverage ratio 51,0 52,2 59,0 63,8 58,7 57,7 60,3 59,1 63,2
Loan to deposit ratio* 136,9 128,0 110,6 102,1 94,8 80,9 73,4 70,7 70,3
Tier 1 ratio 11,5 11,3 13,3 14,7 13,8 13,9 15,9 14,2 15,3
Capital adequacy ratio 14,1 13,8 16,3 17,4 17,0 16,9 18,0 16,2 17,2
Return on equity** -0,3 -12,0 -5,1 -0,4 -21,9 0,3 11,7 14,5 -
Return on assets** 0,0 -0,9 -0,4 0,0 -2,0 -0,1 1,3 1,5 -
3.2. Financial sector  
 
22 provide s mall firms with  long-term loans (up to 10 
years ) at maximum fixed -interest rate of 2.5  %. In 
parallel, the central bank continues to run the 
Market -Based Lending Scheme, aiming to enhance 
banks’ lending to small firms , while public 
development banks also o ffer financial support 
through loans and credit guarantees (see Box 
3.4.1). Given the ongoing recovery of private 
lending, the extent of public intervention in the 
bank credit market appears excessive and may 
crowd out market lending. The abundance of 
comp eting financing schemes also creates 
incentives for firms to look for funds with the least 
strings attached, reducing demand for better -
monitored programmes (Kállay, 2015). This 
concern is backed up by an analysis of EU funds in 
the 2007 -2013 cycle, which found that non -
refundable EU grants to small firms  had less of an 
impact on firm level productivity than refundable 
ones (Banai et al. 2017).  
Non-bank finance is modest and dependent on 
EU funds.  Capital market financing has not grown 
much since 2017. EU f unds are sponsoring a 
programme carried out by the Budapest Stock 
Exchange to help small and medium sized 
enterprises  prepare for stock exchange listing. EU 
funds also play a major role in venture capital 
financing, whose size relative to GDP had grown 
to near the EU average by 2016.  
Financial soundness indicators are not 
currently giving rise to any concerns about 
stability (see Table 3.2.1). Banks are maintaining 
adequate financial resilience and sound solvency 
ratios. Their capital position improved furt her in 
the first half of 2018. In the same period, the loan -
to-deposit ratio fell further to around 70  % from 
73 % at the end of 2016. The aggregated stock of 
non-performing loans fell to 5 % in the first half of 
2018, while this share is still high among the 
households . The total  decline was mostly due to 
sales of portfolios to debt and asset management 
companies, but it was also supported by the 
increase in lending stock and the improving 
repayment capacity of borrowers as a result of 
strong economic grow th. Debt management 
companies have also reduc ed their non -performing 
loan stock . Their corporate holdings fell by over 
30 % between 2015 and 2018. The average 
coverage ratio remained at around 60  %, with 
major variations between banks.  Record bank profits in 2017 and the first half of 
2018 were boosted by one -off items.  The average 
return on equity for all institutions was a record 
high 14.5  % in 2017, and remained strong in the 
first half of 2018. Nevertheless, the profitability is 
heterogeneous across the  sector and is much lower 
in small institutions , among which  seven still 
booked after -tax losses. The outstanding results 
were possible largely thanks to one -off items 
including dividend and to trading revenue, as well 
as the reversal of provisions. Return  on equity 
without one -offs is estimated at 8  %. It is still high 
in comparison to the EU average, thanks to high 
net interest income. However, low interest rates 
and intensifying competition are gradually eroding 
margins, bringing operating efficiency int o focus.  
Hungarian banks’ relative inefficiency weighs 
on their long -term profitability.  Operating costs 
across the sector remain high in EU and regional 
comparison. Banks have made efforts to contain 
costs by keeping annual wage increases five 
percentage  points below the national average since 
2014, and by reducing the number of branches by 
one quarter between 2014 and 2018. Still, 
Hungarian banks – apart from the largest 
institutions – make slow progress in applying 
digital technology to banking. Hungary  ranks 
among the last in the EU in terms of digital 
banking (MNB, 2018 b). The central bank has 
recently launched an innovation hub and a 
regulatory sandbox to support the spread of 
financial technology in local institutions. Finally, 
the widespread use of cash in the economy drives 
up banks’ operating costs. Currency in circulation 
has risen from about 8  % of GDP in 2010 to nearly 
14 % by 2018, also encouraged by the introduction 
of the financial transaction tax in 2012. In July 
2018, the government adopted  a five -year action 
plan to reduce cash use in transactions with the 
public sector, and among businesses. As of 
January 2019, HUF 20 000 from every individuals’ 
transaction is exempt from the transaction tax.  
Divestment by t he state in the sector  progresse s 
slower than planned . Despite earlier declarations 
and market demand, the government  has not sold 
Budapest Bank (the eighth largest bank). It also 
maintains stakes in smaller institutions. The central 
bank remains a majority shareholder of the 
Budapest St ock Exchange, giving rise to a 
potential conflict of interest as it is also responsible 
for supervising the stock exchange.  
3.2. Financial sector  
 
23 Box 3.2.1: Regional disparities in house prices  
The Hungarian housing market is characterised by strong regional disparities. The regional house price 
indices published by the central bank show that individual regions are in different stages of the housing 
cycle. Pri ces in Budapest have already surpassed their last peak by 2 8 %, adjusted for changes in purchasing 
power. Two further regions have reached the high point of the last cycle, while the remaining regions remain 
3-22 % percent below it.  
Regional house prices l argely reflect differences in socio -economic developments, such as income levels 
and growth rates, unemployment rates and internal migration flows. In addition, the legacy of foreign 
currency loans, which were the most prevalent in the least developed regi ons, may affect house prices 
persistently (Verner -Gyöngyösi, 2018).  
 
 
Graph  1: Real house prices in Hungarian regions (peak of previous cycle=100)  
 
Source:  MNB Central Bank of Hungary  
  
  
In the case of Budapest, standard economic fundamentals alone cannot account for all of the increase in 
prices (MNB, 2018 a). Specific factors may stem from the unique role played by the capital, which is not just 
a centre for national economic activity, administration and education, but also a regional economic hub a nd 
a major tourist destination. All this has made the Budapest housing market more attractive to foreign 
investors. In 2017 non -native buyers accounted for 8.8  % of transactions in the capital, compared to 3.6  % in 
the rest of the country ( HCSO , 2018 a). Ad ministrative data show that the share of buyers from outside the 
European Union rose from 1.7  % to 6  % between 2010 and 2016, largely on account of rising interest from 
China. Meanwhile, the share of non -EU buyers remained flat at 0.5  % outside the capital . International 
evidence suggests that economic and political developments in host countries can affect foreign demand for 
housing, making Budapest house prices more exposed to global factors  (1). At the same time, rising tourism 
and hotel capacity shortag es led to the rapid spread of Airbnb services in Budapest, which already involve 
1 % of all apartments (Jancsik et al., 2018).  
Budapest -specific factors can also accelerate suburbanization, which pushes up prices and boosts 
construction and economic activi ty in neighbouring municipalities. On the other hand, negative side -effects 
of suburban sprawl include road congestion, pollution, and rising spatial mismatches in the supply and 
demand of public services (Kovács -Tosics, 2014). Addressing these challenges requires coordinated effort 
and investments in the metropolitan area in several policy fields.   
 
(1) See Badarinza -Ramadorai (2018) for evidence on the London housing market . 
 
5060708090100110120130
Budapest Central Transdanubia
Pest county Western Transdanubia5060708090100110120130
Southern Great Plain Southern Transdanubia
Northern Great Plain Northern Hungary
 
 
24 3.3.1.  LABOUR MARKET  
Employment and wages increased a mid strong 
economic expansion, but did not benefit  all 
groups equally.  The employment rate for the 20 -
64 age group reached 74.6  % and the 
unemployment rate fell to 3.8  % in the third 
quarter of 2018. However, the gaps in employment 
and wages between genders and skills groups 
remain wide in EU comparison. Labour market 
outcomes for various vulnerable groups, including 
Roma and people with disabilities, are weak. 
Despite its reduction, the Public Works Scheme is 
still large .  
Outward migration and demographic trends 
put pressure on the size of the workforce.  At 
least 300 000 and possibly as many as 600 000 
Hungarians are estimated to permanently live in 
other EU Member States (Portfolio, 2018) mostly 
in the U nited Kingdom  and Germany. Within this 
group, the proportion of tertiary education 
graduates is higher  than of any other educational 
segment (Hárs, 2018). The outflow has not been 
balanced by immigration, as the number of 
foreigners legally working in Hungary (including 
EU citizens) is estimated by the government at 
45 000. According to projections made by  the 
Hungarian Demographic Research Institute, by 
2030 the working age population will shrink by 
around 11  %. Over the same period, the total 
population is projected to decrease by 6  %.  
Policy responses to the labour shortage focus on 
prolonging working l ives and working hours.  
Most early retirement possibilities have now been 
closed and the statutory retirement age is set to 
reach 65 years in 202 2. As of 2019, no social 
security contributions are due for employees who 
have passed the retirement age. Recen tly the 
Parliament amended the Labour Code to allow 
more overtime work. The working week in 
Hungary (39.6 hours in the second quarter of 
2018) is already longer than the EU average (37.0 
hours). The possibility to further r aise the working 
hours and defer compensation  has been strongly 
opposed.  Other means of addressing the labour 
shortage – e.g. more inclusive and higher quality 
education and training, further reduction of the 
Public Works Scheme – remain underutilised.   
Regional labour market disparities  remain 
significant.  The difference in unemployment rates between the best and worst performing regions 
was more than threefold in 2017 with a rate of 
2.2 % in Central Transdanubia versus 7.4  % in the 
Northern Great Plain. More than 260  000 people 
(ca. 5.7  % of the active population) migrated 
within Hungary in 2017. Since 2010, the 
population of Central Hungary increased by 2  %, 
while the population in the two regions in the 
north -west decreased by 2.6  % and in the four 
regions in east and south by 4.9  %. T he decrease 
was particularly significant in rural areas. Poor 
public transport, deficient road infrastructure and 
high rental costs are barriers to further mobility 
(see Section 3.4).  
Graph  3.3.1:  Regional unemployment rate and 
participation in the Public  Works Scheme, 2017  
 
The graph plots the unemployment rate against Public 
Works Scheme  participation (as a ratio to active 
population), by region. The size of the disks is proportional to 
the average number of participants in 2017.  
Source:  European Commission based on data from Eurostat 
and Hungarian Government  
The participation in the Public Works Scheme 
has decreased.  Between the first and third quarters 
of 2018 the number of participants fell by 40  000, 
or 22  %. Its budget for 2019 is l ower by 20  % 
compared to 2018. The favourable economic cycle 
and targeted measures improved the efficiency of 
the scheme. In 2017, 18.1  % of participants were 
in regular employment six months after leaving the 
scheme compared to 15.6  % in 2016. The per 
capita cost of the scheme is higher and its 
efficiency is lower than that of active labour 
market policies (Fertig  and Csillag, 2015). Despite 
plans, no measures were taken to convert 
participants into permanent municipality workers. 
Its budget is allocated r oughly proportionally to 
the regional unemployment rate, so sizeable funds 
Central 
HungaryCentral 
Transdanubia
Western 
TransdanubiaSouthern 
TransdanubiaNorthern 
HungaryNorthern 
Great Plain
Southern 
Great Plain 
012345678910
0 1 2 3 4 5 6 7 8 910Public Works Scheme participation as a 
ratio to active population, % 
Unemployment rate, %3.3. LABOUR MARKET, EDUCA TION AND SOCIAL POLI CIES 
3.3. Labour market, education and social policies  
 
25 go to regions with very low unemployment rates 
(see Graph 3.3.1).  
Active labour market policies have a wide reach 
but their targeting could be improved, pointing 
to an investment ne ed. By the end of 2018, 
programmes aiming to improve jobseekers ’ 
employability and possibilities to enter the labour 
market, funded by the European Social Fund and 
the Youth Employment Initiative covered more 
than 2 30 000 people. While on average 34  % 
participated in trainings, a reliable quality 
assurance and rating system accessible to 
jobseekers is still lacking. The better skilled 
unemployed are well served, but there is not 
enough support targeting the less employable 
groups, such as the long -term unem ployed, the 
inactive, Roma and people with disabilities. 
Coordination with social and health services is 
insufficient.  
The efficiency of public employment services 
could be improved.  The caseload for many 
jobcentres exceeds their capacity and caseworkers 
are overloaded with administrative duties (Hétfa, 
2018), leaving less time for individualised 
assessment. The institutional structure of the 
public employment services is fragmented. Using 
quotas for active labour market policies still 
greatly influences p rofiling outcomes, which 
impairs the efficiency of j ob matching. The 
monitoring of the quality of training programmes 
remains limited .  
The gender employment gap is high and the 
availability of childcare remains low.  Although 
the employment rate for women has increased, the 
gender employment gap remained high at 16 p ps in 
the first quarter of 2018, well above the EU 
average of 11.7 pps. The gap is the widest (20 pps) 
in the 25 -39 age group, due to significantly lower 
employment rates for young mothers. The impact 
of parenthood on the employment rate of women 
with a child under 6 years old was the second 
highest in the EU (at 42.6 pps). This is also related 
to the fact that men are not encouraged to take up 
parental leave. The number of children who are 
under  3 years old and in childcare is increasing but 
remains below the EU average and the Barcelona objective (see Graph 3.3.2). In 2017, childcare was 
not available in 2610 settlements inhabited by 
about 70  000 children (26 %) under the age of 3, 
which points towards a significant need for 
investment. New types of crèche facilities are 
becoming more widespread but their coverage 
remains low. Family crèches accounted for 13  % 
of total available places and mini -crèches and 
workplace crèches for less than 1  % (HCS O, 
2018b). Projects co -financed by the EU support the 
creation of more crèche places and contribute to 
lowering childcare costs.  
Graph  3.3.2:  Childcare under 3 years age (%)  
 
Source:  Eurostat  
The duration of unemployment benefits is the 
shortest in the  EU, at a maximum of 3 months.  
This is below the average time needed to find a 
job. Although the ratio of people staying 
unemployed for less than three months slightly 
improved in recent years, the average duration of 
unemployment is still close to 12 mont hs 
(European Commission 2018 c, p. 34). This shows 
a substantial mismatch with the benefit provision.  
Low -skilled workers continue to face low 
employment rates and lower wages.  The gaps 
between the employment rates and average wages 
of low -, medium - and hi gh-skilled workers have 
been higher in Hungary than in most other EU 
Member States. The tax wedge for low incomes 
remains among the highest in the EU despite 
recent cuts to employer contributions (Section 3.1). 
Due to the concentration of high -skilled work ers in 
cities, this is a particular problem in rural areas.  
05101520253035
2010 2011 2012 2013 2014 2015 2016% of total
Barcelona objective EU Hungary
3.3. Labour market, education and social policies  
 
26 Box 3.3.1: Monitoring performance in light of the European Pillar of Social Rights  
The European Pillar of Social Rights is designed as a compass for a renewed process of 
upward convergence towards better working and living conditions in the European 
Union  (1). It sets out twenty essential principles and r ights in the areas of equal opportunities and 
access to the labour market; fair working conditions; and social protection and inclusion . 
Hungary performs relatively well on 
some indicators of the Social Scoreboard 
supporting the European Pillar of Social 
Rights, but challenges remain.  
Employment and unemployment outcomes 
compare well with  EU averages and 
inequality is lower than in many ot her 
Member States. Challenges related to  
human capital formation include a high 
rate of early school leaving and the level of 
digital skills. The gender employment gap 
is high. With social benefits at low level, 
the good score on the impact of social 
trans fers can be explained by generous 
parental leave benefits . 
The Pillar principle of housing and 
assistance for the homeless states that 
adequate shelter and services shall be 
provided to the homeless in order to 
promote their social inclusion. A recent 
chan ge in the Hungarian constitution 
outlawing living on the street attempts to 
tackle homelessness but does not address 
its root causes. More action is needed as 
regards provision of social housing and other inclusion measures . 
In line with the Pillar princip le on inclusion of people with disabilities, in 2018 the 
Hungarian government revised the nursing allowance for home care:  it committed to 30  % 
increase of the amount in four years, and introduced higher amount for care by parents. At the 
end of the four -year period, the allowance for care by parents will reach the minimum wage, 
recognising care similar to employment. The decision is a significant step in preventing 
institutional care .  
 
(1) The European Pillar of Social Rights was proclaimed on 17 November 2017 by the European Parliament, the Council 
and the European Commission . https://ec.europa.eu/commission/priorities/deeper -and-fairer -economic -and-monetary -
union/european -pillar -social -rights/european -pillar -social -rights -20-principles_en  
Adult participation in learning remains low.  
The proportion of adults participating in education 
and training was 6.2  % in 2017, well below the EU 
average of 10.9  %. This affects in particular the 
unemployed, who are about four times less likely 
to participate in learning than people in 
employment. In order to address this 
disequilibrium, more investment in adult learning 
is necessary.  The employment of  Roma has increased, but  
challenge s remain . Between 2014 and 2017 the 
employment rate of Roma increased from 33  % to 
45 %, but a large share of those in employment 
(36.6  %) work in the Public Work Scheme (HCSO, 
2018c). With only 36  % of Roma women in paid 
work, the gender employment gap among Roma 
reaches 19 pps. Apart from the lower education 
level, geographical factors also contribute to the 

3.3. Labour market, education and social policies  
 
27 disadvantage as a significant share of Roma live in 
areas where employment possibilities are scarce.  
The security of employm ent is also lower for 
Roma as only half of those in employment have 
open -ended contracts compared to 90  % among 
non-Roma.  
People with disabilities are still under -
represented on the labour market.  Their 
participation in employment has slightly increased 
but is still one of the lowest in the EU (41.6  % vs. 
the average of 48.1  %). The disab ility employment 
gap is wider than the EU average (32.2 vs. 
25.8 pps). The government attempts to integrate 
people with disabilities in the labour market by 
limiting eligib ility conditions, while also 
encouraging companies to employ them. The 
public services for jobseekers with disabilities are 
operated in isolation from the Public  Employment 
Service  and funding for non -governmental service 
providers continues to be limited.  This hampers 
access to personalised vocational rehabilitation, 
job matching and workplace adjustment services , 
pointing to an investment need.  
Social dialogue structures and processes are not 
developed enough . The National Economic and 
Social Council (NGT T) is a broad civil dialogue 
body operating without the participation of the 
government and has an advisory role. The 
Permanent Consultation Forum of the Private 
Sector and the Government (VKF) is a tripartite 
body with members selected by the government 
and operating in a non-transparent manner 
(Pásztóy, 2018). It has only a narrow scope of 
competences and the agreements it concludes are 
not legally binding . The Sectoral Dialogue 
Committees have a weak institutional background, 
which impairs their efficien cy. All in all, the 
current setup fails to meet the principle of social 
dialogue and involvement of workers, which is 
included in the European Pillar of Social Rights. 
Social partners continue to have very limited 
influence on national decision -making.  
3.3.2.  SOCIAL POLICIES  
Hungary’s  overall poverty situation has been 
improving since 2013, but challenges remain.  In 
2018, one in five (19.6 %) Hungarians was at risk 
of poverty or social exclusion. In absolute numbers 
this represented 908 000 people fewer  than in 2008 (the national Europe 2020 goal is 450  000). The 
number of people facing severe material 
deprivation and living in low work intensity 
households has halved since 2013 . The severe 
material deprivation rate was still the fourth 
highest in the EU in 2017 (see Graph 3.3.3). 
Income mobility across generations is lower than 
in most other Member States (Tóth and Szelényi, 
2018). Poverty risks faced by children, families 
with three or more children and single parent 
families are decreasing, but remain high er than the 
EU average . In 2018, they amounted to 23.8 %, 
25.5 % and 40.0 %, respectively. The adequacy 
and coverage of tailored early childhood 
development services for disadvantaged families, 
such as the Sure Start Children Centres do not 
meet all demand.  
Graph  3.3.3:  Main poverty indicators, 2005 -2018  
 
Source:  Eurostat  
Poverty and social exclusion are concentrated in 
certain areas.  The share of population at risk of 
poverty or social exclusion in Northern Hunga ry 
was 10.5 pps and in rural areas 5.7  pps above the 
national average in 2017 (HCSO, 2017a). In the 
least developed districts, where one in ten 
Hungarians lives, the average income per taxpayer 
reached only 69.8  % of the national average in 
2016, hardly ab ove the minimum wage (HCSO, 
2017b). The concentration of social exclusion is 
confirmed by a mapping  (4) that found 
neighbourhoods with high share of low educated 
and unemployed people (segregated areas) in 22  % 
                                                           
(4) The mapping was done by the Hungarian Central Statistical  
Office, based on census data.  
0510152025303540
0506070809101112131415161718% of population
At-risk-of-poverty-or-social-exclusion rate
At-risk-of-poverty rate
Severe material deprivation
People living in low work intensity households
3.3. Labour market, education and social policies  
 
28 of the localities. Nationwide, the share of people 
living in segregated areas is 2.8  %, but reaches as 
much as 11.9  % in the least developed districts. 
Residential separation also contributes to 
educational segregation (see Section 3.3.3), and is 
often accompanied by severely limited access to 
basic  public infrastructure and services. EU co -
funded development projects addressing those 
challenges have been implemented in over 200 
localities, but more investment might be needed.  
The majority of Roma face poverty or social 
exclusion.  The share of Roma a t risk of poverty or 
social exclusion was 67.8 % in 2018. While the 
estimated share of Roma in the national population 
is around 7  %, among people at risk of poverty or 
social exclusion it reaches 20 -25 %. 
The supply of social housing is not sufficient to 
address demand from those in need.  The share 
of the population that face severe housing 
deprivation was 15.9  % in 2017, the second 
highest in the EU, and 3.5 times the EU average. It 
was particularly high among children (27.3  %). 
The supply of affordable r ental housing is low and 
shrinking. Between 2010 and 2016, rental prices 
grew by 75  %, while the average net wage in the 
lowest income decile grew by only 11  % (Habitat, 
2018). The share of municipal flats rented with 
social purposes was at only 1.1  % of t he housing 
stock in 2017 (HCSO, 2018 d). Increasing the 
supply of social housing would help address 
homelessness.  
The provision of long -term care for people with 
disabilities is improving but requires further 
attention.  In 2016, some 26  600 people with 
disabilities and mental health problems lived in 
long-term residential social institutions, and some 
54 900 benefited from a nursing allowance for 
home care, ranging from 23.6  % to 42.5  % of the 
minimum wage (HCSO, 2017c). This allowance is 
set to rise signifi cantly (see Box 3.3.1) 
(Government, 2018). While Hungary committed to 
investing EU funds to transit 10  000 people from 
institutional to community -based care by 2023, the 
conditions for independent living could still be 
improved. The supply of support servi ces for 
community and home care is strongly limited.  
While, thanks to generous parental leave 
benefits, the impact of non -pension social 
transfers on poverty reduction is one of the highest in the EU, key elements of the social 
safety net can be imp roved . In parallel to the 
expansion of employment, the number of 
recipients of the minimum income benefit fell 
from 237  600 in 2012 to 99  800 in 2017. As the 
minimum income benefit has not risen since 2012 
and is now below one -third of the national poverty 
thres hold, it puts Hungary among the lowest 
performers in terms of adequacy. The public works 
wage decreased relative to the minimum wage, 
from 77.2  % in 2013 to 59.1  % in 2018. In -work 
poverty has increased from 5.2  % in 2010 to 8.4 % 
in 201 8. Social security does not provide full 
coverage for all people in employment, such as 
casual and seasonal workers (European 
Commission, 2018 d).  
3.3.3.  EDUCATION AND SKILLS  
Educational outcomes are below the EU 
average and there is great variation between 
schools . The 2016  Progress in International 
Reading Literacy Study shows improvements in 
reading among fourth graders but large 
performance gaps remain between schools and 
school types. By the age of 15, basic skills are 
significantly below the EU and regional averages 
(PISA, 2015) and have decreased in the last decade 
(see Graph 3.3.4). Students’ achievement shows 
strong correlations with their socio -economic 
background. The study  shows that 37  % of 
Hungarian students go to schools where 
disadvantaged students are the majo rity, meaning 
that disadvantaged students are more separated 
from non -disadvantaged peers in Hungary than in 
other countries. Disadvantaged students have low 
chances of entering the higher educational tracks 
as the scholarship scheme for them offers more 
favourable conditions for entering the lower 
vocational track, acting as an additional factor 
preventing upward educational mobility. 
Inequality in education narrows the possibility for 
social mobility. Low -income families in Hungary 
have the poorest chance s of approaching the mean 
income in the EU (OECD, 2018 b). 
The separation of disadvantaged pupils, 
including Roma, has accelerated in the last 
decade.  The education system has become more 
segregated in recent years, which is only partly 
explained by residen tial separation. The share of 
primary schools with 50  % or higher Roma 
3.3. Labour market, education and social policies  
 
29 participation increased from 10  % in 2008 to 15  % 
in 2017. Improved participation of Roma children 
in early childhood education and care and recent 
measures (including anti -segregation officers and 
working groups and new rules defining school 
catchment areas) are meant to prevent segregation. 
However, their impact is limited by the exemption 
of non -state schools from the requirement to take 
disadvantaged pupils (Ercse 2018, Ercse -Radó 
2019). 
Graph  3.3.4:  Programme for International Student 
Assessment (PISA) results, 2000 -2015  
 
(1) Average of mathematics, reading and science (2) CEE4: 
Czech Republic, Poland, Slovakia, Slovenia  
Source:  OECD  
In 2017, the early school leaving rate increased 
to 12.5  %, which is above the EU average of 
10.6 %. While early school leaving has been 
decreasing steadily across the EU, it has not fallen 
in Hungary since 2010. Schools with high rates of 
pupils at risk of dropping out are required to offer 
more personalised support to the pupils concerned, 
indicating a possible investment need. Early school 
leaving rate is particularly high among Roma 
(65.3  %). Participation of 17 and 18 year -olds in 
secondary education dropped sharply between 
2011 and 2016 (f rom 98  % to 85  %), after the 
ending age of compulsory education was lowered 
from 18 (the age of completing secondary 
education) to 16 in 2012. The share of students 
concerned varies greatly by school type and region 
(EA, 2018a). In the three most affected counties, 
14-16 % of students are at risk of dropping out. In 
the lower track of vocational education and 
training, this figure is 21  %. The two tracks of vocational education and 
training differ strongly in terms of career 
perspectives for their graduates . Vocational 
education and training has two regular pathways: 
vocational grammar school (szakgimnázium) with 
more general education content and vocational 
secondary school (szakközépiskola) with less. 
Students in vocational secondary schools have a 
signifi cant and growing deficit in basic skills 
compared to those in vocational grammar schools 
and grammar schools (gimnázium) (EA, 2018b). 
Moreover, vocational secondary schools have 
much higher drop -out rates (15.3  % per school 
year in 2016) than vocational gr ammar schools 
(6.5 %) and grammar schools (1.1  %). Vocational 
secondary school graduates earn 24  % less than 
vocational grammar school graduates (HAS, 
2018a). The wage disadvantage of vocational 
secondary school graduates increases by age, 
indicating the l ack of transferability of skills 
acquired in these schools (Fazekas and Köllő, 
2018). Recent legislative changes aim to improve 
the labour market relevance of vocational 
education and training. However, switching 
between professions or pathways is made mor e 
difficult by the reduced general education content 
starting in the first year of vocational secondary 
schools.  
The shortage of teachers remains a challenge.  
The teaching workforce is ageing, and according to 
forecasts some 50  000 teachers will retire wit hin 
10 years (Government, 2016a). The number of 
applicants for initial teacher education rose in 
2017, but dropout rates are high and the number of 
graduates who actually enter the profession 
remains low. Teachers’ salaries rose in recent 
years but are sti ll 25  % lower than those of other 
tertiary education graduates, compared to an 
OECD average deficit of 4 -19 % (OECD, 2018 c). 
The low effectiveness and equity in the school 
system are likely to be linked with the low level of 
curricular autonomy, the lack o f socioeconomic 
diversity within schools and low teacher salaries  
(European Commission, 2018 e, 98p.).  
A continuing low level of participation in higher 
education is likely to further restrain tertiary 
attainment rates . The employment rate of recent 
tertia ry graduates is 88.7  %, well above the EU 
average of 84.9  %, reflecting strong demand for 
highly skilled workers. Tertiary graduates also 
enjoy the highest wage premium across the EU 
470475480485490495500
2000 2003 2006 2009 2012 2015PISA score
CEE4 HU OECD
3.3. Labour market, education and social policies  
 
30 (OECD, 2017). However, current enrolment and 
completion trends are not al igned with demand. 
The tertiary education attainment rate among 30 -
34 year olds decreased to 32.1  % in 2017, against 
an increasing EU and regional average (see Graph 
3.3.5). As of 2020, a foreign language certificate of 
proficiency level B2 will be an entr y requirement 
for all but short -cycle tertiary education 
programmes. This may further exacerbate the 
long-term downward trend in the pool of 
applicants, as only 48  % of applicants currently 
hold a B2 level certificate (HAS, 2018 a). The 
Ombudsman found that  the language requirement 
would need to be accompanied by a greater 
allocation of human and other resources to 
language teaching to avoid infringing 
constitutional rights (Ombudsman 2017). The 
share of disadvantaged students among all students 
admitted int o tertiary education was very low, at 
1.4 % in 2016, and the share of Roma was only 
0.8 % (HAS, 2018 a; HCSO, 2018 e). 
Graph  3.3.5:  Tertiary education attainment rate among 30 -
34 years, 2008 -2017, relative to EU average  
 
(1) EU=100  
Source:  Eurostat  
3.3.4.  HEALTHCARE  
Although gradually improving, the health 
status of Hungarians lags behind that of most 
other Europeans and significant socio -economic 
health disparities persist . Over the last five years, 
the gap in life expectancy between Hungary and 
the EU has narrowed by about 15 weeks. However, 
large differences remain: in 2016, life expectancy 
for men and women was lower than the EU 
average, by 5.6 and 3.9 years respectively. Differences based on socio -economic status are 
particularly significant, wit h highly educated 
Hungarians living up to 12.8 years longer than 
those with a lower education level. These 
differences are partially explained by a higher 
prevalence of risk factors among people living in 
lower socio -economic groups, as well as by 
inequali ties in access to care services.  
Many people lead an u nhealthy lifestyle.  Daily 
smoking rates among adults remained flat between 
2006 and 2016 at around 26  %, one of the highest 
figures in the EU. In recent years, the Hungarian 
authorities have put in plac e a series of policies 
against smoking , which  have proven effective in 
reducing juvenile smoking. The prevalence of 
alcohol use disorders in Hungary is the highest in 
the EU, affecting 21.2  % of the total population 
and 36.2  % of men (WHO, 2018). Obesity r ates 
have increased over the past decade, affecting an 
alarming 30  % of the population in 2016. The high 
prevalence of risk factors makes cardiovascular 
diseases the leading cause of death in Hungary, 
accounting for 49.5  % of all mortality in 2016, i.e. 
around double the EU average. Cancer incidence 
and mortality rates are also among the highest in 
the EU. Partly due to unhealthy lifestyles, the 
proportion of live births weighing less than 2500  g 
was among the highest in the EU (8.5  % in 
2015)(5). The risks  of unhealthy lifestyles and 
related mortality are especially high among the 
lower educated (Wood -Bellis, 2017). The impact 
of health promotion and disease prevention 
policies in recent years has been limited.  
The timely provision of quality care remains a  
challenge, impacting life expectancy.  Although 
relatively few of the surveyed Hungarians report 
unmet health needs (see Box 3.3.1), the number of 
amenable deaths remains almost twice the EU 
average. While progress is being made to improve 
take-up of cance r screenings by target groups, 
participation is still relatively low, and 
geographical inequalities in access remain 
sizeable. Improving access to and the quality and 
cost-effectiveness of cancer care may require more 
investment in prevention and early det ection.  
A high reliance on out -of-pocket payments in 
healthcare raises concerns about equality of 
access.  Hungary spends 2  % of GDP less on health 
                                                           
(5) WHO https://gateway.euro.who.int/en/hfa -explorer/  
6065707580859095100
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Hungary CEE3
3.3. Labour market, education and social policies  
 
31 care than the EU average and relies more on end -
user financing. In 2017, household out -of-pocket 
payments acc ounted for 30  % of all health 
expenditure, a much higher proportion than the EU 
average (18  %). This figure includes gratuity 
payments to physicians, which have historically 
played a non -negligible role in healthcare delivery 
in Hungary. Survey data (Eurob arometer, 2017) 
show that the number of Hungarians who reported 
having made an informal payment to a practitioner 
increased by 7 pps to 17  % between 2013 and 
2017. This ratio is more than fourfold the EU 
average (4  %). In 2015, 11.5  % of Hungarian 
househol ds faced health expenditure above 40  % 
of their income available after basic needs, mainly 
on outpatient medicines.  
Structural changes to the hospital sector are 
required to improve the efficiency and quality 
of inpatient care.  While some positive steps ha ve 
been taken to limit excess in -patient capacity in the 
past decade, in 2016 the ratio of hospital beds per 
1000 population was 37  % above the EU average, 
while the bed occupancy rate was one of the 
lowest in the EU at 68.5  %. In contrast to the 
general E U trend, the average length of time that 
patients stay in hospital has increased and is now 
among the highest in the EU. The hospital network 
is very fragmented, which hinders efficiency and 
quality of care. EU funds have contributed to 
positive developmen ts that have modernised the 
infrastructure of about 70 hospitals  between 2007 
and 201 7. Further efficiency gains require a 
hospital network structure that reduces and 
concentrates hospital capacity both regionally and 
functionally.  
Improving primary care and care coordination 
would significantly increase efficiency . Evidence 
of the intensive use of hospital services, together 
with high rates of ambulatory sensitive admissions, 
points to a weak gatekeeping system. General 
practitioners operate mainly in sol o practices and 
are not equipped to provide effective, person -
centred care. There is a room for improvement as 
regards clarity of guidelines, care pathways for 
chronic disease management and investments in 
primary care services, especially in under  
provisi oned areas.  
There has been some progress on training and 
retaining health professionals, but future 
supply and regional disparities are still an issue.  Although the number of physicians in Hungary has 
increased over the last five years and is now only 
slightly below the EU average (3.2 compared to 
3.6 per 1000 people), the number of nurses is still 
low (6.4 compared to 8.4 per 1000 people). The 
government has made staff retention a priority in 
response to the mass emigration of health 
professionals and the  expansion of the private 
sector over the last decade. The salaries of doctors 
and nurses have been raised, and existing training 
and support programmes have been enhanced and 
extended . Despite the success of these measures, 
vacant posts remain hard to fil l, especially for 
general practi tioners and maternal child health 
nurses. Health infrastructure and capacities are 
distributed unevenly, with significant shortages in 
rural and deprived areas. There are large 
differences in waiting times across regions for  
elective procedures, for example cataract surgery, 
knee and hip replacement.  
3.3.5.  INVESTMENT NEEDS  
Increased investment in skills, education and 
training and social inclusion of disadvantaged 
groups are important for improving Hungary’s 
productivity an d long -term inclusive growth.  
Shortage of skilled labour is among the main 
obstacles to business investment, pointing at the 
need to invest more in bringing unused or under -
used reserves to the primary labour market. This 
requires comprehensive policy resp onses, 
including improving quality and inclusiveness of 
education and training, addressing disadvantages 
by strengthened social and healthcare services, 
promoting social and geographical mobility also 
by social housing, and paying due attention to 
geograph ical disparities in the availability of the 
services. The gender dimension needs to be 
addressed, among others by improving the 
availability of child and long -term care services.  
 
 
32 3.4.1.  PRODUCTIVITY AND INV ESTMENT NEEDS  
Productivity differences between firms remain 
large.  Company -level data reveal that the 
dispersion of  productivity across firms in any 
given sector is relatively large in international 
comparison. Foreign -owned firms  on average  tend 
to be larger, use more capital, and be more 
productive than domestic -owned ones. They also 
enjoy a productivity advantage ov er similarly sized 
domestic firms (Muraközy et al. 2018).  
Graph  3.4.1:  Labour productivity (total economy, 2000=100)  
 
(1) CEE3: average of Czech Republic, Poland and Slovakia  
Source:  Eurostat  
Productivity growth is picking up with the 
favourable economic cycle, but it remains 
sluggish in historical and regional comparison.  
Although Hungary's productivity kept pace with 
that of regional peers until the financial crisis, it 
increasingly fell behind in subsequent years (see 
Graph 3.4.1). This diverge nce is explained by the 
weak performance of market services (see also 
Graph 3.4. 5), while the productivity of the 
manufacturing sector increased further. Contrary to 
private companies, the productivity of state -owned 
enterprises failed to increase since 20 12 
(Muraközy et al. 2018).  
Thanks to the cyclical economic upswing, 
investment is rising in every sector, supporting 
productivity gains.  The investment rate had climbed above its historic average by 2018. In the 
early phase of the cycle, business investme nt was 
subdued apart from large -scale projects in 
manufacturing financed by foreign direct 
investment. This was because rising demand could 
still be satisfied with existing capacities. As 
capacity utilisation rose steadily, investment 
picked up in recent y ears. Household investment is 
reviving after several years of subdued activity, 
thanks to the improving labour market and pent -up 
housing demand. Public investment is also 
accelerating, driven both by the accelerated 
spending of EU funds and rising investm ent from 
own financing (see Graph 1.2).  
Although aggregate investment is robust, its 
composition reflects some structural weaknesses 
in the economy.  The recent rise in the investment 
rate was driven by construction and machinery; the 
accumulation of intel lectual property stagnated at 
2.6 % of GDP in 2017, about 1 percentage point 
below the EU average, albeit slightly exceeding 
regional peers (see Graph 3.4.2). The proportion of 
non-investing firms is also higher than the EU 
average (24  % compared to 13  %; EIB, 2018).  
Graph  3.4.2:  Investment in intellectual property (% of GDP)  
 
(1) CEE3 is the average of Czech Republic, Poland and 
Slovakia  
Source:  Eurostat  
100110120130140150160
000102030405060708091011121314151617
Hungary CEE3 EU
012345
95 97 99 01 03 05 07 09 11 13 15 17
Hungary CEE3 EU%3.4. COMPETITIVENESS  REFORMS AND INVESTME NT  
3.4. Competitiveness reforms and investment  
 
33 Box 3.4.1: Investment challenges and reforms in Hungary  
Investment staged a strong recovery in recent years, rising from its trough of 19.3  % of GDP in 2012 to 
about 25  % of GDP in 2018. The fav ourable economic cycle and the utilisation of EU funds have been the 
key drivers of broad -based investment growth (see Section 1). Access to investment finance improved 
markedly with the inflow of EU funds and record low interest rates (see Section 3.2).  
National development banks also contributed to easing financing constraints. Eximbank supports export 
activity and export -related investment, while Magyar Fejlesztési Bank plays a role in disbursing refundable 
EU funds, and finances infrastructure projects and market niches. Their combined balance sheet rose from 
5.2 % of GDP in 2010 to 5.8  % in 2017. In addition, investment loans refinanced by the central bank’s 
Funding for Growth scheme averaged nearly 1  % of GDP in 2013 -2017.  
While the macroeconomic envir onment supports investment growth, structural barriers persist including:  
1. Limited availability of skilled labour, which leads to project delays in construction, and can discourage 
investment in new manufacturing capacity. Recent policy initiatives aim t o postpone workers’ retirement 
and increase the number of working hours (see Section 3.3).  
2. Several aspects of the business environment, including regulatory uncertainty, weaknesses in 
competition and the insolvency framework. In this area, the planned r eview of insolvency procedures 
could improve the allocation of existing capital (see Section 3.4).  
 
Increased investment in innovation, transport 
infrastructure and resource management are 
important for sustainable and inclusive growth.  
R&D spending is well below the EU average and 
the Europe 2020 target, holding back innovation 
performance and contributing to the  large 
productivity gap between foreign and domestic 
firms. Low accessibility of disadvantaged areas 
entrenches territorial inequality. Environmental 
challenges negatively affecting the quality of life , 
includ ing low energy efficiency, low renewable 
energy  use, air pollution, and weaknesses in water 
and waste management.  
 Research and innovation  
Hungary’s overall innovation performance is 
moderate and has declined relative to the EU . 
The low level of intellectual asset accumulation is 
also reflected in the low number of patent, 
trademark, and design applications, the small  
number of innovative businesses and the low level 
of internationalisation by small and medium sized 
enterprises . This fact is also reflected in the 
European Innovation Scoreboard ( European  
Commission , 2018 f). Smaller firms are especially 
reluctant to innovate, hindering their involvement 
in global value chains. According to the 2016 
Community Innovation Survey, only 1 7.9 % of 
small firms  introduced new products or processes, 
Regulatory/ administrative burdenCSRTaxationCSR
Public administration Access to finance - 
Public procurement /PPPsCSRCooperation btw academia, research and business
Judicial system - Financing of R&D&I - 
Insolvency framework Business services / Regulated professions
Competition and regulatory framework RetailCSR
EPL & framework for labour contracts  - Construction - 
Wages & wage setting - Digital Economy / Telecom
Education CSREnergy
Legend :Transport - 
No barrier to investment identified
CSR Investment barriers that are also subject to a CSR Some progress
No progress Substantial progress
Limited progress Fully addressedPublic 
administration/ 
Business 
environmentFinancial 
Sector / 
Taxation
R&D&I
Sector 
specific 
regulationLabour 
market/ 
Education
3.4. Competitiveness reforms and investment  
 
34 which is less t han half of the EU average. The 
main self -reported causes for failing to innovate 
were the lack of ideas, the perceived lack of 
demand for innovation, and low market 
competition.  
R&D investment remains below the EU 
average, and is dependent on EU funds.  In 2017, 
R&D spending intensity increased by 0.1 5 
percentage points to 1.35  % of GDP, partly due to 
the accelerated advance payments of EU funds. 
This is still well below the Europe 2020 target of 
1.8 %. Business R&D, which amounts to 0.9 9 % 
of GDP, is conce ntrated in a few large, mainly 
foreign -owned companies, and benefits from 
generous government support. Public funding of 
private R&D is among the highest in the EU. At 
the same time, public sector R&D expenditure 
declined from 0. 49 % of GDP in 200 6 to 0.3 5 % 
by 201 7, well below the EU average of 0.7  %.  
The quality of public science suffers due to 
underfunding.  The shortage of financial resources 
is detrimental to the career opportunities of 
researchers in the public sector and their number 
fell by 1.5 % since 2010. This trend is 
accompanied by a decrease in the number of 
research units, and a falling proportion of highly 
cited publications. The proportion of science and 
engineering graduates has also declined since 2014 
and is among the lowest in the E U. Science -
business cooperation remains below the EU 
average due to the traditional divide between 
research, education and innovation entities in 
Hungary. In 2017, eight university -business 
cooperation centres were set up with EU co -
financing to foster col laboration. The centres 
should develop sustainable institutional operations 
and to run innovation projects. Scientific 
performance and technology transfer would benefit 
from investment in public research capacities, 
which are a key source of knowledge and human 
resources for innovation in domestic companies.  
The smart specialisation strategy would benefit 
from being updated, reinforced and more 
focused.  Hungary introduced its national smart 
specialisation strategy in 2014 as a precondition to 
accessing Euro pean Structural and Investment 
Funds, in order to increase the performance of its 
scientific, technological and innovation system. In 
2018, the National Research, Development and 
Innovation Office  started revamping the monitoring system of the strategy and  drafting its 
first monitoring report.  
Recent policy measures create uncertainty in 
academic and research fora. Hungarian higher 
education institutions have the lowest financial 
autonomy in the EU according to a recent 
evaluation (EUA, 2017a). In addition,  the April 
2017 amendment of the Higher Education Act 
raised further concerns regarding academic 
freedom  (EUA, 2017b). The Central European 
University, the largest higher education beneficiary 
under Horizon 2020, signalled its intention to leave 
Hungary be cause of the regulatory uncertainty 
created by this amendment. More recently , the 
government has announced that it plans  to reform 
R&D  financing to boost innovation performance. 
The Hungarian Academy of Sciences  has rejected 
the proposed changes  to its fin ancing (HAS, 
2018b) and closing its selected institutions for fear 
of breaching academic independence. It now faces 
financial difficulties as the funding of non -wage 
expenditure by the central budget has been cut 
from January 2019. These policy -related 
uncertainties may result in losing top research 
talent to abroad and risk a persistent decline in 
research quality.  
Digitalisation and business organisation  
Only a fraction of small businesses adopt good 
organisational practices, and information and 
communica tion technologies.  According to the 
2016  Community Innovation Survey, just 1 8.5 % 
of small Hungarian  firms  introduced marketing or 
organisational innovations, compared to 3 8.4 % in 
the EU on average. Hungary ranks among the last 
in the EU when it comes to businesses integrating 
digital technology. While the broadband 
infrastructure is developed  in Hungary (82% of 
homes are covered by at least 30 Mbps), half of the 
population la cks basic digital skills, which is 7 pps 
more than the EU average. Only few SMEs use 
digital technologies (see Graph 3.4.3) including 
management support software, suggesting that 
state-of-the-art management practices are seldom 
adopted. The most basic aspe cts of business 
planning are missing in most small companies: 
only three out of ten make annual business plans 
and only two out of ten have any marketing and 
sales strategy (MNB, 2018 b). Surveys indicate that 
family ties and connections play an important r ole 
while education and merit are less relevant in 
3.4. Competitiveness reforms and investment  
 
35 awarding managerial positions than in most other 
Member States ( WEF , 2018).  
Graph  3.4.3:  Use of IT solutions by businesses (% of 
companies in 2017)  
 
Source:  Eurostat  
Connectivity  
Weak transport connect ivity contributes to  
unemployment in disadvantaged areas.  
Transport networks are centred on Budapest, while 
local networks and transversal connections through 
the country are not well developed. Local 
unemployment in remote, mostly rural areas is 
significa ntly increased by high commuting costs 
(Bartus, 2011) and weak local public transport 
connections (Pogonyi, 2014). Until 2018, 
employers could offer workers a tax -free 
contribution to public transport season tickets; this 
benefit has been abolished from 20 19 even though 
it could support commuting in low -mobility areas 
(Alpek et al. 2016).  
The poor condition of road and rail networks 
hampers mobility and reduces travel safety.  
More than half of the road network is in bad 
condition (Magyar Közút, 2018). The situation is 
particularly acute in disadvantaged regions. Road 
congestion is a growing challenge and a barrier to 
productivity in Hungary’s urban areas, which are 
among the m ost congested in Europe ( Christidis -
Nicolás , 201 2). Plans for a road access charge in 
Budapest have nonetheless stalled. The completion 
of the Trans -European core rail transport network  
according to standards is below the respective EU averages. Even though the backbone of the Trans-
European Transport Networks  is electrified, the 
39 % electrification ratio in the entire rail network 
is rather low. The Danube bridge in Budapest is a 
major bottleneck of the rail network. The poor 
quality of transport infrastructure and aging 
vehicle fleets contribute to the high number of road 
and rail fatalities, which exceed the EU average. 
The government launched a rehabilitation 
programme of lower class roads and plans 
investm ent in the rail network to address these 
challenges.  
Inland navigation on the Danube is suffering 
from low water conditions as well as restrictive 
regulation.  Multimodal transhipment possibilities 
may be improved for some main ports .  Enhanced 
cooperation  with Slovakia on the Danube would be 
important.  
Energy sector and climate  
Energy efficiency in the residential sector 
remains weak.  Hungary is at risk of failing to 
reach its 2020 energy saving target, largely 
because household energy consumption per capi ta 
remains 12  % higher than the EU average even 
though income levels are considerably lower. 
Energy efficiency standards for new buildings 
have been strengthened considerably, but there 
remains a large potential in refurbishing the 
existing housing stock, public buildings and 
district heating networks ; as well as in small firms.  
The electricity sector faces new challenges, with 
significant investment needed in generation and 
the network.  Hungary imports around one third of 
its electricity needs, and about half of its domestic 
electricity generation comes from nuclear sources. 
Coal, lignite and gas cover around 40  % of 
electricity production. The share of renewable 
sources remained around 10  % in 2017. Although 
investments in solar generation facilities doub led 
to 500  MW between 2016 and 2018, and are 
expected to quadruple until the end of 2020, there 
are still investment opportunities in solar, wind and 
geothermal energy, especially if coal were to be 
phased out from electricity generation. The 
network also needs to be prepared for the rising 
role of decentralised renewable electricity 
generation, along with more balancing and power 
storage capacities.  
0 20 40 60 80Big Data analysisRadio Frequency IdentificationOnline buying,
reservation, bookingCloud computingCustomer Relationship
Management softwareEnterprise Resource
Planning softwareHigh speed broadband
connection (>30 Mbps)Remote access
for employeesWebsite
EU average Hungary
3.4. Competitiveness reforms and investment  
 
36 Retail energy price regulation discourages 
investment in the sector.  Retail electricity and gas 
prices in th e household sector are low in EU 
comparison. However, this is largely owing to end -
user price regulation, which does not recognise 
some cost elements in the final prices. This results 
in higher prices for non -household customers, as 
utilities try to recove r costs in this latter segment. 
Hungary’s wholesale electricity market prices are 
higher compared to those of their neighbours, 
primarily due to higher domestic electricity 
generation costs. Implementing all planned cross -
border interconnection projects wo uld improve 
access to electricity imports with competitive 
prices from Western Europe. Gas supply sources 
are still highly concentrated, underlining the need 
to implement all regional gas infrastructure 
projects, as this would make it possible for 
Hungary to import gas from alternative sources.  
Hungary is on track to meet its climate goals, 
but there remain challenges in decarbonisation 
and climate change adaptation.  Emissions not 
covered by the EU Emissions Trading System are 
allowed to increase by a maxi mum of 10  % by 
2020 compared to 2005 levels. Instead, they fell by 
9 % until 2017, and are forecast to decrease by 
19 % until 2020. Despite this improvement, air 
pollution remains a problem. The transport sector, 
which is a large contributor to air polluti on in 
cities, increased its greenhouse gas emissions by 
24 % from 2013 to 2016. The further 
decarbonisation of the economy will require 
investments. In addition, half of Hungary’s 
territory is significantly exposed to climate change 
risks including drought  and floods, which create 
the need for investment in water management on 
main rivers.  
In its National Energy and Climate Plan to be 
adopted by 31 December 2019 in line with the 
Regulation on the Governance of the Energy 
Union and Climate Action (6), Hunga ry will 
provide an overview of its investment needs until 
2030 for the different dimensions of the Energy 
Union, including renewable energy, energy 
efficiency, security of supply, and mitigation and 
of and adaptation to climate mitigation. The 
information provided, including in the draft plan 
                                                           
(6) Regulation (EU) 2018/1999 of the European Parliament 
and of the Council  submitted  on 31 January 2019 , will further 
contribute to identifying and assessing Hungary’s 
energy and climate -related investment needs.  
Hungary’s Second National Climate Change 
Strategy for 2018 -2030, with an outlook  to 2050 
was adopted by the Hungarian Parliament on 30 
October 2018.  
Environment policy  
Air pollution and water quality remain a 
concern . In 2015, around 15 000 premature deaths 
in Hungary were attributable to bad air quality 
(EEA, 2018). The main sources of pollution are 
residential solid fuel combustion, agriculture and 
transport emissions. Water supply and sanitation is 
still not fully compliant with the Drinking Water 
Directive, and water affordability remains an issue 
for the low -income population. Reg ulated tariffs 
for water and wastewater services might not cover 
the maintenance costs of many operators.  
Hungary is at the initial phase of moving 
towards a circular economy.  Despite the recent 
major reform of the waste management system 
Hungary is at ri sk of failing to achieve the 2020 
target of 50  % preparation for re -use/recycling of 
municipal waste  (European Commission, 2018 g). 
In 2016, the proportion of recycled municipal 
waste remained 11 pps below the EU average, 
while the proportion of landfilling  exceeded it by 
23 pps. Progress is slow due to a lack of incentives 
for households to participate in separate collection, 
and insufficient economic instruments. The 
Ombudsman of Future Generations has criticised 
the funding system of waste collection, 
questioning its financial sustainability (AJBH, 
2018).  
Environmental challenges require a series of 
investments and institutional capacity building.  
Investments would best target the main sources of 
air pollution, as well as waste collection and 
recycling. K ey measures under specific sectoral 
policies (e.g. energy, transport) also need to be 
aligned with air quality objectives. Institutional 
capacity is hampered by frequent changes in 
environmental administration; significant staff 
reductions carried out in 2 018 raise concerns.  
 
3.4. Competitiveness reforms and investment  
 
37 Box 3.4.2: Zombie firms in Hungary  
Recent research shows that the survival of unproductive, financially unviable (‘zombie’) firms can account 
for a part of the global productivity slowdown since the millennium. The share of these firms increased in 
several countries, and their presence is a ssociated with lower productivity growth and investment (Adalet 
McGowan et al. 2017). Following the financial crisis, banks in a weak financial position were particularly 
reluctant to cut lending to these companies. This reduced lending to healthy firms an d raised barriers to the 
entry of new firms (Andrews -Petroulakis, 2017).  
For the purpose of this analysis, ‘zombie’ firms are defined as relatively old companies (over 10 years) 
whose interest expenses have exceeded operating income for the last three year s (Adalet McGowan et al. 
2017). According to this definition, their regular business operations do not generate enough income to 
finance their debt burden. They were identified among the universe of Hungarian firms using double 
bookkeeping, based on compan y tax statements for 2003 -2016 (Muraközy et al. 2018).  
The share of ‘zombie’ firms in Hungary was already high before the financial crisis, and rose even further 
until 2011. Their peak share was similar to Spain and even higher than Italy, while their weig ht in 
employment surpassed both countries. Their persistent large share suggests that they were not responsible 
for slower reallocation after the crisis; rather, they held back productivity growth throughout the period.  
In recent years, the share of ‘zomb ie’ firms has fallen, helped by banks’ restructuring of nonperforming 
loans, the improving macroeconomic environment and loose monetary policy, which suppressed borrowing 
costs. The Funding for Growth programme, launched by the central bank in 2013, was ex pressly designed to 
reduce the debt burden of small and medium sized enterprises by refinancing their existing loans at 
preferential terms. This policy may have negative side effects: although it buys companies time to raise 
productivity, past Japanese exp erience shows that the ever greening  of loans only increased inefficient 
investment among small firms (Imai, 2016).  
 
Graph  1: Share of financially unviable ('zombie') firms in the Hungarian business sector  
 
Classification based on Adalet McGowan et al.  (2017)  
Source:  Muraközy et al. (2018), based on company level data  
  
According to international evidence, the presence of ‘zombie’ firms is associated with inefficient insolvency 
regimes, low bank capitalisation and a low share of non -bank financing (Adalet McGowan et al. 2017). 
Hungary underperforms compared to other EU members in all of these areas (see also Section 3.2), 
suggesting that despite recent improvements, conditions for the re -emergence of ‘zombie’ firms have not 
disappeared altogether.   
024681012141618
0304050607080910111213141516%
Share of firms Share of employment
 
 
38 3.4.2.  MARKET FUNCTIONING  
Business dynamics  
The reallocation of resources towards more 
efficient firms slowed down persistently, 
hindering aggregate productivity growth . While 
productivity growth within individual firms is 
already near ing pre-crisis values, the contribution 
of business dynamics remain s weak (see Graph 
3.4.4). The entry of new firms kept falling even 
after the economic recovery started (Bauer -
Endrész, 2018). While this trend fits with 
international experience, it was potentially 
exacerbated by rising outward migration from 
Hungary, because it involved a particularly high 
share of younger and better -educa ted individuals 
(see Section 3.3.1).  
Graph  3.4.4:  Decomposition of business sector productivity 
growth (%)  
 
The within effect is the average productivity growth of 
individual companies. The between effect is due to 
changing market shares between existing firms with different 
productivity levels. The net entry effect results from 
differences in the productivity levels of new entrants, 
continuing and exiting firms.  
Source:  Muraközy et al. (2018)  
The culture of entrepreneurship is weak, 
reducing the  pool of enterprises with high 
growth potential.  The Global Entrepreneurship 
Monitor (Horváth -Szerb, 2016) and the Global 
Competitiveness Report ( WEF , 2018) both reveal 
a low level of entrepreneurial activity in Hungary. 
The share of entrepreneurs out of n ecessity is 
relatively high, near 28  %; these individuals tend 
to have lower ability and manage low -productivity 
businesses (Poschke, 2013). Start -up skills and the 
willingness to take risks are weak in the population (Falk et al. 2018). The high cost of b usiness failure 
may also increase risk aversion and set back 
entrepreneurship.  
Weak competition hampers reallocation.  More 
productive firms do not grow larger due to weak 
competition and financing constraints (Muraközy 
et al, 2018), albeit access to financ e is already 
improving (see Section 3.2). A large number of 
old, small, low -productivity firms persist on the 
market, preventing the realisation of economies of 
scale ( MNB, 2018c ). After the crisis banks have 
kept afloat less productive firms to limit thei r 
credit losses, slowing the process of creative 
destruction (see Box 3.4.2).  
Insolvency procedures remain inefficient.  
Evidence for their shortcomings arises in a still -
high rate of non -performing loans, the assessment 
of the World Bank Doing Business sur vey, and an 
elevated fear of failure by potential entrepreneurs 
(European Commission, 2018h ). The insolvency 
procedure does not create sufficient incentives to 
reorganise viable businesses (Pálinkó -Tóth, 2017), 
while the cost of resolving insolvency is hig h.  
A review of the insolvency framework is 
ongoing.  In 2017 and early 2018 the government 
introduced a new pre -insolvency procedure to 
restructure viable companies and rescue honest 
entrepreneurs. Starting from  2019, further reforms 
are planned with the s upport of the European 
Commission and EBRD, including increasing the 
importance of early restructuring in the law, as 
well as training judges and insolvency 
administrators.  
Regulation in the service s sector  
Productivity and competitiveness of the service s 
sector are relatively weak.  Contrary to what 
happened in regional peer countries, the 
performance of services declined sharply over the 
past decade (see Graph 3.4.5.). The  Global 
Competitiveness Index ranks Hungary at the 
bottom in the EU in terms of produ ct market 
functioning (WEF, 2018). The ranking is 
particularly weak on the extent of market 
dominance, competition in services and service s 
trade openness.  
Competition and productivity in the service s 
sector is hindered by regulatory barriers and 
-2-1012345678
2004-2007 2007-2010 2010-2013 2013-2016pps
Between firm growth Net entry effect
Within firm growth TFP growth
3.4. Competitiveness reforms and investment  
 
39 state inv olvement.  The authorities continue to 
entrust certain services to state -owned or private 
firms specifically created for these purposes (e.g. 
textbook publishing, waste collection, mobile 
payments, tobacco wholesale and retail, golden 
visas etc.). The gove rnment can exempt certain 
mergers and acquisitions from the competition 
scrutiny. Over the last five years, the government 
used this power more than 20 times in a wide 
range of sectors including energy, banking, 
broadcasting, tobacco and media. The lack of  
competition in these sectors may become 
detrimental to innovation and efficiency. 
Exemptions to competition law increase regulatory 
uncertainty, as market participants in affected 
sectors do not know what forces are shaping future 
market structures (OECD,  2016).  
Graph  3.4.5:  Labour productivity in the market service 
sector relative to the EU average (2000=100)  
 
(1) CEE3: Czech Republic, Poland, Slovakia, (2) Based on 
chain linked volume, normalised to 2000  
Source:  Eurostat  
Unpredictable retail regulations may limit  
investment and competition.  The government 
introduced new legislation envisaging an 
additional special authorisation for retailers 
wishing to expand operations. This is on top of the 
2015 legislation, requiring pl ayers to file for 
special authorisation for new retail outlets bigger 
than 400m2. The unclear application of the new 
legislation remains a source of uncertainty for 
retailers and can deter investment in the sector. 
Frequent introductions and subsequent rep eals of 
measures have been distorting the functioning of 
the sector over the past years.  There remains a strong growth potential for the 
collaborative economy. Around a third of 
respondents from a recent Eurobarometer survey 
have used services offered via  collaborative 
platforms. Also in the use of services related to 
accommodations, Hungary  has the second most 
users in the EU from 1000 people. At the same 
time, Hungary is last in the EU regarding  the usage 
of shared transport services  among users of 
colla borative platforms . This could be linked to the 
highly restrictive regulation in the sector, as 
indicated in the 2018 Country Report. While only 
8 % of respondents from Hungary have ever 
offered services via collaborative platforms, 20  % 
would consider off ering services occasionally as 
private individuals.   
Regulation of professions remains restrictive . 
According to the new OECD Services Trade 
Restrictiveness Index, the level of regulatory 
restrictiveness in Hungary vis -à-vis service 
providers from other M ember States is higher than 
the Single Market average in sectors such as 
accounting, architecture, engineering, legal and 
computer services. Recently revised regulations 
maintain provisions such as recommended prices 
that limit competition. The government is working 
on a proposal to decrease the high number of 
regulated professions in Hungary.  
3.4.3.  REGIONAL DIFFERENCES  
Geographic structures  contribute to spatial 
inequality.  Spatial disparities are significant in 
terms of economic development, labour mark et 
and education outcomes, and demographic trends 
(see Sections 1 and 3.3). 94 out of 175 districts are 
classified as having a disadvantaged status. The 
capital plays a disproportionately large role in the 
economy while regional economic centres are 
weak. Urbanisation is relatively low, as 30 % of 
the population lives in villages. Large areas are 
populated with very small settlements: one -third of 
all municipalities have fewer than 500 inhabitants. 
Due to these spatial features, agglomeration 
benefits are m ostly seen in Budapest but remain 
weak in the rest of the country.  
Deficiencies in local infrastructure reinforce 
spatial differences.  Rural areas suffer from 
shortages and degradation of infrastructure and 
public services including local education and 
100105110115120125
000102030405060708091011121314151617
Hungary CEE3
3.4. Competitiveness reforms and investment  
 
40 health care. A clear East -West demarcation exists 
in the access and subscription of households to 
fixed broadband  internet . The Eastern regions have 
an access rate of 75 -80%, while the access rates in 
Western and Central regions are 80-85% and 85 -
90%, respect ively.  Rural areas lag significantly 
behind in the coverage of fast broadband 
connections (European Commis sion, 2018 i). In 
cities, uncoordinated suburban sprawl has not been 
followed by investment in infrastructure, and city 
centres are often losing function. Deficiencies in 
infrastructure degrade the quality of life, hinder 
local market integration and ultimately contribute 
to the depopulation of disadvantaged areas.  
Significant geographical differences in public 
services and infrastructure  underline  the need 
for distinct investment.  Significant regional 
disparities exist in terms of innovation 
performance within Hungary  (European 
Commission, 2017b) . The urban -rural divide could 
be alleviated by improving the connectedness of 
remote rural communities and by improving public 
services, including education and healthcare, 
which would slow  the population decline.  
Regional policies would benefit from 
geographic and thematic differentiation and 
coordination.  Despite the existence of the 
integrated territori al programmes (co -financed by 
EU funds) that build on local needs and potentials, 
interventions are not sufficiently differentiated. 
Although budget allocations reflect the economic 
strength of Hungary’s regions, the available 
portfolio and the distributio n of investment 
priorities do not. Moreover, the system is not 
tailored to reflect different territorial needs or to 
accommodate individual thematic choices. 
Regarding the lack of coordination, the recently 
launched national territorial development 
program mes (the Modern Cities Programme and 
the Modern Villages and Small Municipalities 
Programme) target the development of 23 larger 
cities and villages, respectively. The majority of 
spending is dedicated to improving transport 
infrastructure, but investment in regional 
innovation infrastructure also features 
prominently. However, coordination between the 
two flagship programmes appears weak. This 
creates the risk that smaller cities – which host 
30 % of population and are not covered by either 
programme – may lose functions to larger cities, 
which would lead to their decline. In addition, the regional aspect of the Smart Specialisation 
Strategy is still at an early stage, with priorities 
defined in broad terms without regional 
differentiation, and with insuffi ciently harmonised 
implementation measures.  
3.4.4.  INSTITUTIONAL CAPACI TY  
Business environment and institutional 
performance  
Hungary continued to rank relatively low on 
business environment scoreboards.  In 2018, 
internationally collated indicators ranked  Hungary 
in the bottom quartile of EU Member States (WEF, 
2018; IMD, 2018; DUIHK, 2018). This is 
consistent with Hungary’s position based on 
income level. The country’s ranking has not 
improved over the past decade. Although sub -
indicators on macroeconomic  performance and 
taxation improved, Hungary performed weakly on 
competition in services, business dynamics and 
institutional quality. In October 2016, Hungary set 
up a Competitiveness Council, which reviews 
barriers to businesses. In 2018, the Council 
discussed several comprehensive proposals to 
improve the business environment, prepared by 
various stakeholders.  
Weak and declining quality of institutional 
governance limits  competition.  The Worldwide 
Governance Indicators show that over the past 
decade, Hung ary’s performance declined in five 
broad dimensions of governance, but improved in 
political stability  (WGI, 2018) . The deterioration 
in international comparison is particularly notable 
in the areas of voice and accountability, and 
control of corruption (s ee Graph 3.4.6.). 
Institutions are key to a well -functioning economy 
(Acemoglu -Robinson, 2010; Bruinshoofd, 2016). 
Corruption risks and weak accountability distort 
the allocation of resources as these are not 
necessarily channelled to the most productive 
firms. They also slow down business dynamics and 
productivity growth in general (Akcigit et al., 
2018).  
Digital public services remain a challenging 
area for Hungary’s digital economy and society.  
Hungary ranks among the last in the EU on the re -
use of inf ormation across administrations to make 
life easier for citizens (pre -filled forms) and on the 
3.4. Competitiveness reforms and investment  
 
41 sophistication of services (online service 
completion). However, several digital solutions 
have been recently implemented, such as eHealth, 
automatic online fill ing of the tax statement and an 
e-procurement system.  
Graph  3.4.6:  Average of the voice and accountability and 
control of corruption indexes in Worldwide 
Governance Indicator (EU average=100)  
 
(1) Figures refer to the average scores of two indicators on a 
scale  of 0 -5 (2) CEE 3: Czech Republic, Poland and Slovakia  
Source:  World Governance Indicators  2018  
The effectiveness of the legal framework 
hinders  the business environment of smaller 
enterprises.  In the everyday business operation, 
how rules are applied is just as important as the 
formal rules themselves. Perception indicators tend 
to show poorer results than assessments of formal 
rules and measurable statistics. This points to a 
discrepancy betwe en the formal framework and the 
actual application of the rules (Jakab -Gajduschek , 
2018). Small firms tend to have worse perceptions 
than large companies, suggesting that smaller 
companies operate in a less favourable business 
environment (DUIHK, 2018). In vestment projects 
by large firms also benefit from significant  
government support (Éltető -Antalóczy, 2017). The 
government concluded strategic agreement with 79 
firms between 2012 and 2018. However, such 
arrangements are not accessible to smaller firms. 
Differences in the business environment firms 
actually face contribute to the significant 
productivity gap between small and large firms.  
Weaknesses in the transparency of policy -
making process may affect business environment . Available indicators point to 
weaknesses in the transparency of policy -making 
(Bertelsmann, 2018 ; WJP , 2015). The Hungarian 
Parliament continues to adopt legislation that has 
substantial societal and economic impact within a 
very short time for public consultation. Between 
2011 and 2014  on average seven days were 
available to discuss a piece of legislation (Vértesy, 
2016). Regulatory  impact assessments are not 
available for a significant number of laws (CRCB, 
2015, 2016, 2017). Lack of meaningful 
consultation and impact assessment leads to a 
learning -by-doing approach, which contributes to 
frequent changes in the legal framework. In 2017, 
the Parliament adopted 208 Acts, which also 
amended around 1 200 existing laws. Fast track 
legislation combined with the increased number of 
new laws wo rsens the stability of the legal 
framework. For businesses, it leads to higher costs 
and discourages innovation and high value -added 
investments. Selective regulations have 
proliferated. Over the last decade, more than 70 
pieces of legislation targeted spe cific people or 
institutions. Sometimes, such targeted legislations 
penalise actors (e.g. sector -specific taxes); in other 
cases, they grant benefits  (e.g. easing conflict of 
interest rules for a specific public office)  or 
monopolies.   
The effectiveness o f the justice system  
Recent developments in Hungary give rise to 
concerns on judicial independence . The rule of 
law, including the independence, efficiency and 
quality of the justice system, are crucial to 
attracting business and enabling economic growth 
(European Commission, 2018 j). Over the last year, 
perceived judicial independence among businesses 
decreased in Hungary (2019 EU Justice 
Scoreboard , forthcoming) . 
Checks and balances within the ordinary courts 
system have been further weakened.  The 
National Judicial Council (the Council)  (7) faces 
increasing difficulties in counter -balancing the 
powers of the President of the National Office for 
                                                           
(7) The 15 -member Council is composed of the president of 
the Kúria  (Supreme Court) ex officio  and 14  judges -
members (and 14 substitute members) elected by their 
peers. It is tasked with supervising the central 
administration of the judiciary.  
7577798183858789919395
05060708091011121314151617
Hungary CEE3
3.4. Competitiveness reforms and investment  
 
42 the Judiciary (the Office)  (8). The situation, which 
was already flagged by the Council of Europe’s 
Group of States against Corruption (GRECO, 
2015) and the Venice Commission  (Venice 
Commission, 2012a) has further deteriorated since 
January 2018. According to the Council, five of its 
new judges -members have resigned following 
pressure from the Office Pres ident. In addition, 
according to the Council, the Office President has 
called for the initiat ion of disciplinary proceedings 
against four remaining members. Only one 
substitute member out of 14 has remained. The 
absence of effective control over the Office  
President increases the possibility of arbitrary 
decisions in the management of the judicial 
system. The Office President’s decisions to declare 
calls for application to managerial 
posts  ‘unsuccessful’ (9) have been criticised by the 
Council  (NJC, 2018; s ee also Venice Commission, 
2012a). According to the applicable legislation, 
these decisions are not subject to judicial 
review  (10).  
In December 2018, the Hungarian Parliament 
adopted two legislative acts establishing an 
administrative courts system , witho ut waiting  for 
the opinion of the Venice Commission , requested 
by the Hungarian Minister of Justice and  
scheduled for March 2019.  The Council of Europe 
Commissioner for Human Rights expressed 
concerns as to their compliance with the 
requirements of judicia l independence  (Council of 
Europe, 2018). The new administrative courts 
system – composed of eight regional 
administrative courts and a Higher Administrative 
Court – is to be set up as of 2020. It will be 
responsible for reviewing administrative decisions 
affecting the business environment (including 
public procurement, taxation, administrative 
permits and decisions by competition and media 
                                                           
(8) The Office President is an administrative authority 
nominated by the President of the  Republic and elected by 
the Parliament with a two thirds majority from among 
judges with at least a five -year experience as a judge to 
carry out the central administration of the judiciary.  
(9) (Vice) presidents and heads of divisions (kollégium ) of the 
regional courts of appeal, (vice) presidents and heads of 
divisions of the regional courts, (deputy) heads of regional 
administrative and labour law divisions (Section 128(2) of 
Act CLXI of 2011).  
(10) In cases where the Office President declares a call for 
application ‘ unsuccessful’, the Office President has a 
discretionary power to appoint a court manager ad interim  
after a repeated call for application and for a maximum 
period of one year.  authorities) and for hearing other, sensitive cases 
(such as on the civil service and elections). The 
Commission is an alysing the new administrative 
courts system as regards the existence of effective 
safeguards to protect judicial independence, 
including the appointment of judges and court 
presidents, the powers of and the procedure for the 
appointment of the President o f the Higher 
Administrative Court, the central administration of 
the new courts, the transfer and the evaluation of 
judges, the supervisory role of judicial bodies, and 
the uniformisation of case law. The forthcoming 
opinion of the Venice Commission will f eed into 
this analysis.  
Administrative judges are increasingly being 
recruited from the public administration.  A new 
points system for assessing judicial applications, 
which favours the recruitment of senior civil 
servants, was introduced by a ministerial  decree 
(IM, 2017). As a result, the ratio of civil servants 
among new judges  (11) appointed to the bench to 
review administrative decisions rose from 4.8  % to 
43.6 % (NOJ, 2018). Further appointments under 
this scheme will fill the newly envisaged 
administ rative judicial posts, the number of which 
remains to be determined at the discretion of the 
Minister of Justice.  
The effective functioning of the prosecution 
service remains a concern. The Group of States 
against Corruption ( GRECO ) concluded that the 
level of compliance with its 2015 
recommendations remains “globally 
unsatisfactory” (GRECO, 2018). The possibility to 
re-elect the Prosecutor General and the possibility 
to maintain them in office after the expiry of their 
mandate by a minority blocking the election in 
Parliament of a successor, as well as the strict 
hierarchical structure of the prosecution service, 
has been criticised by both GRECO  (GRECO, 
2015) and the Venice Commission  (Venice 
Commission, 2012 b) as these considerably  
increase the potential for political influence over 
this office.  
 
 
                                                           
(11)  Administrative judicial posts created in 2017 were filled in 
in two batches; the new points system was applicable to the 
second batch only.  
3.4. Competitiveness reforms and investment  
 
43 Public Procurement  
Introduction of e -procurement improved 
efficiency in public procurement but there is a 
scope to further improve transparency.  Hungary 
made the e -submission for all contracting 
authorities and all procurement procedures 
mandatory as of April 2018, before the deadline in 
the Directive. E -procurement facilitates the 
submission of tenders and saves costs for bidders. 
The wider use o f the e -procurement could further 
increase the efficiency and transparency of public 
projects, improving the perception of a lack of 
fairness of the procurement procedure in Hungary. 
However, the effectiveness of the Hungarian e -
procurement and its impact on competition is still 
to be seen particularly through the specific 
indicators that can be extracted from the system.  
Graph  3.4.7:  Share of tenders without prior publication and 
award of contracts with only a single bidder 
above EU threshold  
 
(1) Line s refer to the Single Market Scoreboard reference 
values. Values above the red line are evaluated as 
"unsatisfactory", below the green line as "satisfactory" and 
between the two lines as "average" performance.  
Source:  European Commission (2019)  
While rece nt data show some improvements in 
using less  transparent procedures, there is still a 
considerable scope to enhance competition.  The 
share of contracts , concluded after negotiation 
without prior publication for tenders above the EU 
threshold , has been decr easing markedly year -on-
year and reached 5  % in 2018 ( see Graph 3.4.7). 
The amendment to the Public Procurement Act 
adopted in November 2018 tightens further the 
rule to launch negotiated procedures without prior publication. However, the share of tenders with a 
single bid remained stably high over the last years 
and increased in 2018 to 39  % for tenders above 
the EU threshold (Graph 3.4.7). This high figure 
suggests that the legislative amendment of January 
2017 aiming to reduc e this figure  did not bring 
substantial results. Other statistics covering all 
procedures (CRCB, 2018 a, PPA, 2018) show that 
the share of single bidding below the EU threshold 
was somewhat lower. The Public Procurement 
Authority publishes statistics on tender level data, 
showing subs tantial improvements in single 
bidding since 2015. However, the methodology 
underlying these statistics was not agreed with the 
Commission, and they cannot be verified as no 
access is granted to a downloadable and easily 
searchable database.  
Some areas remain unaddressed and anti -
competitive practices are still a challenge.  The 
majority of the public procurements under EU 
thresholds are organised via special procedures, 
which allow only limited publicity for potentially 
interested parties. While horizont al collusion 
between bidders in public procurement is 
punishable, there are legal gaps in criminalisation 
of illegal agreements between certain bidders and 
the advisors to the contracting authorities. In the 
past, s everal Commission audits on management 
verifications identified systemic irregularities, in 
particular related to inadequate selection and 
award criteria and to unequal treatment of 
tenderers. The remedial system may not be 
effective, as the relatively high fees seem to be one 
of the main contrib uting factors to the low number 
of remedy requests initiated by economic 
operators. All these factors may have a dissuasive 
effect on bidders and limit competition, thus 
creating social losses. In a study carried out for 
Hungary, weak competition in constr uction tenders 
was estimated to increase contract prices by 20 % 
compared to a situation of intense competition 
(CRCB, 201 8b). 
Fight against corruption  
Corruption remains a n important  concern.  
Hungary’s scores on most corruption indicators 
have deteriorat ed or stagnated in recent years 
(WGI, 2018; TI, 201 9).  In particular, Hungary’s 
score on favouritism is weak (WEF, 2017), which 
may suggest a lack of merit -based appointments in 
public administration. An amendment to the Law 
0510152025303540
No Calls for Bids One Bidder
2015 2016 2017 20185%10%10%20%%
3.4. Competitiveness reforms and investment  
 
44 on National Assets grants nati onal asset ownership 
rights to any person appointed by an individual 
government decision. The State Audit Office 
found that this provision, coupled with widespread 
discretionary appointments, magnifies the risk of 
abuse of state property. It also found tha t there 
have been no steps to address shortcomings in the 
whistle -blower protection framework and the asset 
declaration systems of officials, nor have effective 
measures been introduced to curb gratitude 
payments in healthcare (SAO, 2018).  
The anti -corrupt ion framework mainly focuses 
on the integrity of public services, while 
determined action on prosecuting high -level 
corruption is lacking.  Each year between 2015 
and 2017, Hungary received one of the highest 
number of recommendations in the EU  from the 
European Anti -Fraud Office . Hungarian authorities 
reportedly launch investigations following 
recommendations  of European Anti -Fraud Office  
and their indictment rate has increased in 2017. 
However, there are still no signs of determined 
action to prosecute cor ruption involving high -level 
officials or their immediate circle when serious 
allegations arise. Accountability for decisions to 
close investigations is a matter of concern as there 
are no effective remedies  (12) against decisions of 
the prosecution service  not to prosecute alleged 
criminal activity detrimental to the public interest, 
including corruption, fraud affecting the EU’s 
financial interests and embezzlement of public 
funds. Perceptions of effectiveness of the judiciary 
in tackling high -level corrup tion are very low, with 
only 15  % of the surveyed population believing 
that bribery to senior officials is appropriately 
sanctioned in Hungary compared to 30  % on the 
average in the EU (European Commission, 2017 c). 
Some changes have been introduced in the 
criminal procedure law in July 2018 to clarify the 
competences of the prosecution vis -à-vis the 
police . An increase in resources is also foreseen.  
Restrictions on access to information hinder 
corruption prevention.  Breaches of obligations 
by public institu tions and the application of 
dissuasive fees for access may discourage 
members of the public from exercising their rights. 
In its annual report, the National Authority for 
                                                           
(12) Substitute private prosecution is not available if the victim 
is the state or an organ vested with public power (Section 
787(3)(d) of Act XC of 2017).  Data Protection and Freedom of Information 
confirmed that there were instances where  public 
institutions illegally charged fees for requested 
documents. While the situation has so far been 
remedied by courts and the Authority, existing 
obstacles and misapplication of the rules may 
hinder transparency in the long run. The Authority 
registe red an increased number of requests (220 
per year for 2017 -2018, up from around 150 in the 
previous period) and notes that in 81  % of cases 
access was granted. An independently run platform 
shows divergent figures, however, and this may 
point to deficienci es in the reporting of statistics by 
public institutions.  
 
 
45 Commitments  Summary assessment  (13) 
2018 country -specific recommendations (CSRs)  
CSR 1:  In 2018, ensure compliance with the Council 
recommendation of June 2018 with a view to 
correcting the significant deviation from the 
adjustment path toward the medium -term budgetary 
objective. In 2019, ensure that the nominal growth 
rate of net primary g overnment expenditure does not 
exceed 3,9 %, corresponding to an annual structural 
adjustment of 0,75 % of GDP.  The compliance assessment with the Stability and 
Growth Pact will be included in Spring when final 
data for 2018 will be available.  
CSR 2:  Continue simplifying the tax system, in 
particular by reducing sector -specific taxes. Improve 
the quality and transparency of the decision -making 
process through effective social dialogue and 
engagement with other stakeholders and by regular, 
adequate imp act assessments. Reinforce the anti -
corruption framework, strengthen prosecutorial 
efforts and improve transparency and competition in 
public procurement inter alia through further 
developing the e -procurement system. Strengthen 
competition, regulatory sta bility and transparency in 
the services sector, in particular in retail.  Hungary has made Limited Progress  in addressing 
CSR 2  
Continue simplifying the tax system, in particular by 
reducing sector -specific taxes.  Some Progress  In 2019, the government continued 
simplifying the tax system. The upper rate of the 
bank levy was lowered further from 0.21 % to 0.2 % 
and it will stop being applicable for investment 
companies. The financial transaction tax was 
                                                           
(13) The following categ ories are used to assess progress in implementing the country -specific recommendations (CSRs):  
No progress:  The Member State has not credibly announced nor adopted any measures to address the CSR. This category covers a 
number of typical situations to be i nterpreted on a case by case basis taking into account country -specific conditions. They 
include the following:  
-no legal, administrative, or budgetary measures have been announced  
-in the national reform programme,  
-in any other official communication to  the national Parliament/relevant parliamentary committees or the European Commission,  
-publicly (e.g. in a press statement or on the government's website);  
-no non -legislative acts have been presented by the governing or legislative body;  
-the Member Stat e has taken initial steps in addressing the CSR, such as commissioning a study or setting up a study group to 
analyse possible measures to be taken (unless the CSR explicitly asks for orientations or exploratory actions). However, it h as 
not proposed any c learly -specified measure(s) to address the CSR.  
Limited progress:  The Member State has:  
-announced certain measures but these address the CSR only to a limited extent; and/or  
-presented legislative acts in the governing or legislative body but these have not been adopted yet and substantial further, non -
legislative work is needed before the CSR is implemented;  
-presented non -legislative acts, but has not followed these up with the implementation needed to address the CSR.  
Some progress:  The Member State has adopted measures  
-that partly address the CSR; and/or  
-that address the CSR, but a fair amount of work is still needed to fully address the CSR fully as only a few of the measures have 
been implemented. For instance, a measure or measures have been adopted by the national Parliament or by ministerial decision 
but no implementing decisions are in place.  
Substantial progress:  The Member State has adopted measures that go a long way towards addressing the CSR and most of them 
have bee n implemented.  
Full implementation:  The Member State has implemented all measures needed to address the CSR appropriately.  
 ANNEX A : OVERVIEW TABLE  
A. Overview Table  
 
46 abolished for the first HUF 20 000 in individuals’ 
transactions from 2019. The tax system operates 
around sixty different taxes, many of which are small 
and generate administrative burden. Recently, some 
smaller taxes, such as the cultural tax, were phased 
out, while others were me rged.  
Improve the quality and transparency of the decision -
making process through effective social dialogue and 
engagement with other stakeholders and by regular, 
adequate impact assessments.  No Progress  No substantial changes have been 
introduced for t he system of social dialogue, thereby 
this still remains underdeveloped and ineffective. In 
consequence, social partners continue to have very 
limited influence on national decision -making. 
Regulatory impact assessments are not available for 
a significant number of laws. Lack of meaningful 
consultation and impact assessment leads to a 
learning by doing approach, which contributes to 
frequent changes in the legal framework. Fast track 
legislation combined with the increased number of 
new laws worsens the sta bility of the legal 
framework and leads to higher costs for businesses, 
discourages innovation and high value added 
investments. Sometimes targeted legislations 
penalise actors (such as the sector specific taxes); in 
other cases they grant benefits or mono polies.  
Reinforce the anti -corruption framework, strengthen 
prosecutorial efforts and  No Progress  Corruption remains a major concern. 
Hungary’s scores on most corruption indicators have 
deteriorated over the past years based internationally 
collated ind icators. In particular the score on 
favouritism is weak. The anti -corruption framework 
mainly focuses on integrity of public services, while 
determined action on prosecuting high level 
corruption is lacking. No steps were taken to 
reinforce the anti -corrup tion framework. No 
measures have been taken to reduce favouritism and 
ensure merit -based appointments at all levels in 
public administration. Restrictions on access to 
information hinder corruption prevention. Public 
institutions continued to illegally cha rge fees for 
requested documents. Some changes have been 
introduced in the criminal procedure law in July 
2018 to clarify the competences of the prosecution 
against  the police and an increase of resources is also 
foreseen.  
Improve transparency and compet ition in public 
procurement inter alia through further developing the 
e-procurement system.  Limited Progress  Efforts have been made by 
Hungary in 2018 to introduce full electronic public 
procurement, but there is still a wide scope to further 
improve tran sparency in tendering processes. The 
public procurement data are currently not published 
in a structured form. The Hungarian e -procurement 
system does not offer access to the system’s data in 
A. Overview Table  
 
47 an open machine -readable format, and there are no 
searchable fun ctions allowing for listing call for 
tenders or bids in different categories. Furthermore, 
there are no functionalities for making aggregate data 
easily understandable to citizens (e.g. visualisations, 
statistics).  
Strengthen competition, regulatory stab ility and 
transparency in the services sector, in particular in 
retail.  No Progress  Certain services continue to be 
entrusted to state -owned or private firms specifically 
created for these purposes. The government 
continues to exempt certain mergers and acquisitions 
from competition scrutiny. Short -term regulatory 
measures with immediate  impact on the business 
environment are being discussed; once adopted, their 
impact is still to be measured. The legislation 
imposing a ban on loss -making has been withdrawn, 
but a new legislative act on authorisation 
requirements for the transformation of  buildings 
dedicated to retail has been introduced. This 
legislation is likely to unnecessarily increase the 
administrative burden on retail companies.  
CSR 3:  Unlock labour reserves through improving 
the quality of active labour market policies. Improve 
education outcomes and increase the participation of 
disadvantaged groups, in particular Roma, in quality 
and inclusive mainstream education. Improve the 
adequacy and coverage of social assistance and 
unemployment benefits.  Hungary has made Limited Progre ss in addressing 
CSR 3  
Unlock labour reserves through improving the 
quality of active labour market policies.  Some Progress  The strong economic expansion in 
Hungary raises employment and wages. The 
employment rate for the age group 20 -64 increased 
to around 75 % and the unemployment rate fell 
below 4 % in 2018. However, the gaps in 
employment and wage outcomes between genders 
and skills groups remain wide in an EU comparison. 
Labour market outcomes for various vulnerable 
groups, including Roma and people with disabilities, 
are weak. The Public Works Scheme is still 
disproportionally large. Since 2016 several 
programmes co -finan ced by the European Social 
Fund have been running and facilitating the 
transition from P ublic Works Scheme  to the primary 
labour market. Other E uropean Social Fund funded 
programmes supporting traineeships and 
entrepreneurship have also been launched and are 
currently ongoing. The Training of Low -skilled and 
Public Workers programme targets mostly public 
workers. Other E uropean Social Fund (and Y outh 
Employment Initiative ) supported active labour 
market programmes initiated in 2015/2016 are being 
A. Overview Table  
 
48 continued. A specific project was also launched to 
support non-governmental organisations to provide 
labour market services (such as counselling, 
mentoring, psychological co unselling etc.) for 
disadvantaged jobseekers. In parallel, participation in 
the public works scheme is set to decrease, along 
with the decrease of the budget allocated for the 
scheme.  
Improve education outcomes and increase the 
participation of disadvantaged groups, in particular 
Roma, in quality and inclusive mainstream 
education.  Limited Progress  Some measures such as the 
modification of school catchment areas and 
establishing anti -segregation officers were taken to 
prevent segregation. However, their impact is limited 
by the exemption of non -state schools from the 
requirement to take disadvantaged pupils, combined 
with the effect of free school choice. 300 schools 
showing high rates of drop -out risk are involved in a 
targeted EU -funded project.  
Improve the adequacy and coverage of social 
assistance and unemployment benefits.  Limited Progress  No substantial change in the level 
and coverage of social benefits, with a few minor in 
kind benefits have been expanded. No change in the 
duration of unemployment benefits, however, the 
ratio of people staying unemployed for less than 
three months slightly improved recent years.  
 
Europe 2020 (national targets and progress)   
 
Employment rate target set in the NRP: 75 %.  The employment rate of the 20 -64 age group 
continued to improve and reached  73.3 % in 2017 
and 74.6  % in the third quarter of 2018 . It is above 
the EU average (72.2  % in 2017).  
R&D target set in the NRP: 1.8 % of GDP  Expenditure on R&D increased by 0.15 percentage 
points to 1.35  % of GDP in 2017 . Hungary needs to 
make further, significant efforts to meet the national 
target.   
In 2017, R&D intensity in Hungary was composed of 
73% private investment (0.99% of G DP) and 26% 
public investment (0.35% of GDP).  
National greenhouse gas (GHG) emissions target:  
+10 % in 2020 compared with 2005 (in sectors not 
included in the EU emissions trading scheme)  By 2017, emissions fell by 9  % compared with 2005. 
According to the latest projection, the 2020 target is 
expected to be met by a wide margin.  
2020 renewable energy target: 13 %  Although in 2017 the preliminary renewable share 
(13.3%) was higher than the 2020 target, it decreased 
A. Overview Table  
 
49 from the last year (14.3%), owing to lower share of 
renewables in heating and cooling, and transport.  
Energy efficiency, 2020 energy consumption targets:  
Hungary's 2020 energy efficiency target is 24.1 Mtoe 
expressed in primary energy consumption (14.4 
million tons of oil equivalent  expressed in final 
energy consumption)   Both primary and final energy consumption rose 
amid strong economic growth for the third 
consecutive year in 2017, respectively reaching 24.5 
and 18.5 million tons of oil equivalent . These values 
are above the respe ctive 2020 targets, implying that 
more efforts need to be done in the remaining three 
years. Final energy consumption target will be 
difficult to meet without additional measures.   
Early school/training leaving target: below 10 %.  In 2017, the early scho ol leaving increased to 12.5 %, 
above the EU average of 10.6 %. It has been getting 
farther from the national target  since 2014 . 
Tertiary education target: 34 % of population aged 
30-34.  The tertiary education attainment rate for 30 -34-years 
olds fell to  32.1 %, significantly below the EU 
average of 39.9  %. 
Target for reducing the number of people at risk of 
poverty or social exclusion, expressed as an absolute 
number of people: 450 000.  In 2018, the population at risk of poverty or 
exclusion was 908 000 lower than in 2008. At this 
point, Hungary significantly overachieves its national 
target.  
 
 
50 
General Government debt projections under baseline, alternative scenarios and sensitivity tests
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Gross debt ratio 73.3 72.9 70.3 68.6 67.6 67.4 67.9 67.9 68.0 68.1 68.2 68.4 68.7
Changes in the ratio  (-1+2+3) -2.6 -0.3 -2.6 -1.7 -1.0 -0.2 0.5 0.0 0.1 0.1 0.1 0.2 0.3
of w hich
(1) Primary balance  (1.1+1.2+1.3) 0.6 0.1 0.5 0.6 0.2 -0.1 -0.5 -0.5 -0.4 -0.4 -0.3 -0.3 -0.3
(1.1) Structural primary balance  (1.1.1-1.1.2+1.1.3) -0.7 -1.3 -0.9 -0.6 -0.6 -0.5 -0.5 -0.5 -0.4 -0.4 -0.3 -0.3 -0.3
(1.1.1) Structural primary balance (bef. CoA) -0.7 -1.3 -0.9 -0.6 -0.6 -0.6 -0.6 -0.6 -0.6 -0.6 -0.6 -0.6 -0.6
(1.1.2) Cost of ageing 0.0 0.0 -0.1 -0.1 -0.1 -0.2 -0.3 -0.3 -0.3
(1.1.3) Others (taxes and property incomes) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
(1.2) Cyclical component 0.9 1.4 1.4 1.2 0.8 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0
(1.3) One-off and other temporary measures 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
(2) Snowball effect  (2.1+2.2+2.3) -2.9 -3.0 -2.3 -1.4 -0.8 -0.4 0.0 -0.5 -0.4 -0.3 -0.2 -0.1 0.1
(2.1) Interest expenditure 2.8 2.5 2.4 2.4 2.3 2.3 2.4 2.5 2.5 2.6 2.7 2.8 2.9
(2.2) Growth effect -2.9 -2.9 -2.3 -1.7 -1.4 -1.2 -1.1 -1.6 -1.6 -1.6 -1.6 -1.6 -1.5
(2.3) Inflation effect -2.8 -2.6 -2.3 -2.0 -1.8 -1.5 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3
(3) Stock-flow adjustments 0.9 2.8 0.2 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Note: For further information, see the European Commission Fiscal Sustainability Report (FSR) 2018. 
b. For the medium-term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment 
required (cumulated over the 5 years following the forecast horizon and sustained thereafter) to bring the debt-to-GDP ratio to 60 % by 2033. The critical values used are 0 and 2.5 
pps. of GDP. The DSA classification is based on the results of 5 deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the 
SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt 
stabilisation, and the size of uncertainties. 
c. For the long-term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent 
fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps. of GDP. The DSA results 
are used to further qualify the long-term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). [2]Thecharts present aseries ofsensitivity tests around thebaseline scenario, aswellasalternative policy scenarios, inparticular: thehistorical structural primary balance (SPB)
scenario (where theSPB issetatitshistorical average), theStability andGrowth Pact (SGP) scenario (where fiscal policy isassumed toevolve inlinewiththemain provisions ofthe
SGP), ahigher interest ratescenario (+1pp.compared tothebaseline), alower GDP growth scenario (-0.5 pp.compared tothebaseline) andanegative shock ontheSPB (calibrated
onthebasis oftheforecasted change). Anadverse combined scenario andenhanced sensitivity tests (ontheinterest rateandgrowth) arealso included, aswell asstochastic
projections. Detailed information on the design of these projections can be found in the FSR 2018.HU - Debt projections baseline scenario
[1]Thefirsttable presents thebaseline no-fiscal policy change scenario projections. Itshows theprojected government debt dynamics anditsdecomposition between theprimary
balance, snowball effects andstock-flow adjustments. Snowball effects measure thenetimpact ofthecounteracting effects ofinterest rates, inflation, realGDP growth (and exchange
rates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.
[3] The second table presents the overall fiscal risk classification over the short, medium and long-term. 
a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-
competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. 4045505560657075808590
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029Debt as % of GDP -HU
Baseline Enhanced lower GDP growth scenario
Adverse combined scenario Enhanced higher interest rate scenario405060708090
2016 2017 2018 2019 2020 2021 2022 2023(% of GDP) Stochastic debt projections 2019 -2023 -HU
p10_p20 p20_p40 p40_p60
p60_p80 p80_p90 p50 Baseline4045505560657075808590
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029Debt as % of GDP -HU
Baseline Historical SPB scenario SGP scenario4045505560657075808590
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029Debt as % of GDP -HU
Baseline Higher interest rate scenario
Negative shock on the SPB Lower GDP growth scenario
BaselineHistorical 
SPBLower GDP 
growthHigher 
interest rateNegative 
shock on 
SPBStochastic 
projections
Risk category MEDIUM MEDIUM MEDIUM HIGH MEDIUM MEDIUM
Debt level (2029) 68.7 67.0 72.4 73.4 72.2
Debt peak year 2018 2018 2018 2029 2018
Percentile rank 67.0% 66.0%
Probability debt higher 36.3%
Dif. between percentiles 40.8HIGHLong 
termDSA
HIGHDebt sustainability analysis (detail)Medium 
term
HIGHMEDIUMShort 
term
LOW
(S0 = 0.3) (S1 = 1.1)S2
MEDIUM
(S2 = 4.1)S1ANNEX B : COMMISSION  DEBT SUSTAINABILITY ANALYSIS AND 
FISCAL RISKS  
 
 
51  
Table  C.1: Financial market indicators  
 
Notes:  
1) Latest  data Q3 2018. Includes not only banks but all monetary financial institutions excluding central banks.  
2) Latest data Q2 2018.  
3) Quarterly values are annualised.  
* Measured in basis points.  
Source:  European Commission (long -term interest rates); World Ba nk (gross external debt); Eurostat (private debt); ECB (all 
other indicators).  
 
 
2013 2014 2015 2016 2017 2018
Total assets of the banking sector (% of GDP)1)113,9 107,6 101,4 103,0 97,7 95,1
Share of assets of the five largest banks (% of total assets) 51,9 49,3 49,4 49,8 49,6 -
Foreign ownership of banking system (% of total assets)2)55,5 47,6 47,0 47,7 46,3 47,3
Financial soundness indicators:2)
              - non-performing loans (% of total loans) - 19,4 15,2 11,9 8,4 6,7
              - capital adequacy ratio (%) 17,4 17,0 16,9 18,0 16,2 17,2
              - return on equity (%)3)-0,4 -21,9 0,3 11,7 14,5 15,6
Bank loans to the private sector (year-on-year % change)1)-4,1 -3,5 -8,1 3,3 6,3 10,0
Lending for house purchase (year-on-year % change)1)-5,4 -6,1 -10,3 -0,8 4,9 9,8
Loan to deposit ratio2)- 89,1 78,6 74,5 71,8 71,3
Central Bank liquidity as % of liabilities1)3,1 3,8 4,9 5,1 3,9 3,3
Private debt (% of GDP) 95,2 91,4 84,6 77,9 71,4 -
Gross external debt (% of GDP)2) - public 47,2 46,6 41,6 37,0 30,1 26,7
    - private 75,3 79,4 73,0 69,4 57,2 56,5
Long-term interest rate spread versus Bund (basis points)* 435,3 364,6 293,7 305,3 264,5 263,5
Credit default swap spreads for sovereign securities (5-year)* 269,8 179,2 139,1 131,3 98,6 80,2ANNEX C : STANDARD TABLES  
C. Standard Tables  
 
52  
Table  C.2: Headline Social Scoreboard indicators  
 
1 People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).       
2 Unemployed person s are all those who were not employed but had actively sought work and were ready to begin working 
immediately or within two weeks.       
3 Long -term unemployed are people who have been unemployed for at least 12 months.       
4 Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2019.       
5 Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at -risk-of poverty rates 
before social transfers with tho se after transfers; pensions are not considered as social transfers in the calculation).       
6 Average of first three quarters of 2018 for the employment rate, unemployment rate and gender employment gap. Data for 
unemployment rate is seasonally adjusted .       
Source:  Eurostat  
 
 
 
2013 2014 2015 2016 2017 2018 6
Equal opportunities and access to the labour market
Early leavers from education and training 
(% of population aged 18-24)11,9 11,4 11,6 12,4 12,5 :
Gender employment gap (pps) 12,4 13,3 13,7 14,0 15,3 15,3
Income inequality, measured as quintile share ratio (S80/S20) 4,3 4,3 4,3 4,3 4,3 4,4
At-risk-of-poverty or social exclusion rate1 (AROPE) 34,8 31,8 28,2 26,3 25,6 19,6
Young people neither in employment nor in education and 
training (% of population aged 15-24)15,5 13,6 11,6 11,0 11,0 :
Dynamic labour markets and fair working conditions†
Employment rate (20-64 years) 63,0 66,7 68,9 71,5 73,3 74,3
Unemployment rate2 (15-74 years) 10,2 7,7 6,8 5,1 4,2 3,7
Long-term unemployment rate3 (as % of active population) 4,9 3,7 3,1 2,4 1,7 1,5
Gross disposable income of households in real terms per capita4 
(Index 2008=100) 97,4 101,2 103,5 109,8 114,4 :
Annual net earnings of a full-time single worker without 
children earning an average wage (levels in PPS, three-year 
average)10934 11256 11480 11712 : :
Annual net earnings of a full-time single worker without 
children earning an average wage (percentage change, real 
terms, three-year average)0,0 2,7 3,4 4,5 : :
Public support / Social protection and inclusion
Impact of social transfers (excluding pensions) on poverty 
reduction5 44,4 43,6 42,0 43,8 46,4 48,8
Children aged less than 3 years in formal childcare 10,0 14,4 15,4 15,6 : :
Self-reported unmet need for medical care 2,6 2,5 2,6 1,3 1,0 :
Individuals who have basic or above basic overall digital skills 
(% of population aged 16-74): : 50,0 51,0 50,0 :
C. Standard Tables  
 
53  
Table  C.3: Labour market and education indicators  
 
* Non -scoreboard indicator       
1 Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for  
the distribution o f individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
2 PISA (OECD) results for  low achievement in mathematics for 15 year -olds.       
3 Impact of socio -economic and cultural status on PISA (OECD) scores. Values for 2012 and 2015 refer respectively to 
mathematics and science.       
4 Average of first three quarters of 2018. Data for youth unemployment rate is seasonally adjusted.       
Source:  Eurostat, OECD  
 
  
Labour market indicators 2013 2014 2015 2016 2017 2018 4
Activity rate (15-64) 64,7 67,0 68,6 70,1 71,2 :
Employment in current job by duration
From 0 to 11 months 14,5 14,4 13,8 14,0 13,2 :
From 12 to 23 months 9,1 9,0 9,2 9,5 10,3 :
From 24 to 59 months 18,4 19,7 18,6 19,1 20,0 :
60 months or over 57,9 56,6 58,2 57,4 56,4 :
Employment growth* 
(% change from previous year) 1,1 4,8 2,4 3,1 2,0 2,3
Employment rate of women
(% of female population aged 20-64) 56,9 60,2 62,1 64,6 65,7 66,7
Employment rate of men 
(% of male population aged 20-64)69,3 73,5 75,8 78,6 81,0 82,1
Employment rate of older workers* 
(% of population aged 55-64)37,9 41,7 45,3 49,8 51,7 54,0
Part-time employment* 
(% of total employment, aged 15-64)6,4 6,0 5,7 4,8 4,3 4,3
Fixed-term employment* 
(% of employees with a fixed term contract, aged 15-64)10,9 10,8 11,4 9,7 8,8 7,4
Participation in activation labour market policies
(per 100 persons wanting to work)37,0 35,2 40,7 51,1 : :
Transition rate from temporary to permanent employment
(3-year average)37,0 38,0 38,5 37,2 : 31,2
Youth unemployment rate 
(% active population aged 15-24)26,6 20,4 17,3 12,9 10,7 10,1
Gender gap in part-time employment 4,8 4,2 3,7 3,7 3,6 3,8
Gender pay gap1 (in undadjusted form) 18,4 15,1 14,0 14,0 : :
Education and training indicators 2013 2014 2015 2016 2017 2018
Adult participation in learning
(% of people aged 25-64 participating in education and  training)3,2 3,3 7,1 6,3 6,2 :
Underachievement in education2: : 28,0 : : :
Tertiary educational attainment (% of population aged 30-34 having 
successfully completed tertiary education)32,3 34,1 34,3 33,0 32,1 :
Variation in performance explained by students' socio-economic 
status3 : : 21,4 : : :
C. Standard Tables  
 
54  
Table  C.4: Social inclusion and health indicators  
 
* Non -scoreboard indicator       
1 At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable  income below 60  % of the national 
equivalised median income.        
2 Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay  
their rent or utility bills, ii) keep their home adequately w arm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone.       
3 Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation.       
4 People living in households with very low work intensity: proportion of people aged 0 -59 living in households where the 
adults (excluding dependent chi ldren) worked less than 20  % of their total work -time potential in the previous 12 months.       
5 Ratio of the median individual gross pensions of people aged 65 -74 relative to the median individual gross earnings of 
people aged 50 -59.       
6 Fixed broad band take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard.       
Source:  Eurostat, OECD  
 
  
2012 2013 2014 2015 2016 2017
Expenditure on social protection benefits* (% of GDP)
Sickness/healthcare 5,0 4,9 4,8 5,1 5,2 :
Disability 1,6 1,5 1,4 1,3 1,2 :
Old age and survivors 10,9 10,8 10,2 9,6 9,5 :
Family/children 2,6 2,5 2,3 2,3 2,3 :
Unemployment 0,6 0,5 0,4 0,4 0,3 :
Housing 0,3 0,3 0,3 0,3 0,4 :
Social exclusion n.e.c. 0,1 0,1 0,1 0,1 0,1 :
Total 21,1 20,5 19,6 19,1 18,9 :
of which: means-tested benefits 0,9 0,9 0,7 0,8 0,7 :
General government expenditure by function (% of GDP, COFOG)
Social protection 16,7 16,4 15,3 14,8 14,3 :
Health 5,1 5,0 4,8 5,2 4,8 :
Education 4,7 4,6 5,1 5,1 4,9 :
Out-of-pocket expenditure on healthcare (% of total health expenditure) 29,4 28,4 28,3 28,9 29,7 :
Children at risk of poverty or social exclusion (% of people 
aged 0-17)*41,9 43,9 41,8 36,1 33,6 31,6
At-risk-of-poverty  rate1 (% of total population) 14,3 15,0 15,0 14,9 14,5 13,4
In-work at-risk-of-poverty rate (% of persons employed) 5,7 7,0 6,7 9,3 9,6 10,2
Severe material deprivation rate2  (% of total population) 26,3 27,8 24,0 19,4 16,2 14,5
Severe housing deprivation rate3, by tenure status
Owner, with mortgage or loan 15,2 14,8 13,9 11,9 17,2 14,1
Tenant, rent at market price 26,6 30,9 24,2 32,2 23,7 22,0
Proportion of people living in low work intensity households4 
(% of people aged 0-59)13,5 13,6 12,8 9,4 8,2 6,6
Poverty thresholds, expressed in national currency at constant prices* 607544 564058 577231 605976 636370 665923
Healthy life years (at the age of 65)
Females 6,4 6,1 6,1 5,9 6,4 :
Males 6,4 6,2 6,0 5,9 6,7 :
Aggregate replacement ratio for pensions5 (at the age of 65) 0,6 0,6 0,6 0,6 0,7 0,6
Connectivity dimension of the Digital Economy and Society Inedex 
(DESI)6 : : 43,7 53,5 59,6 63,6
GINI coefficient before taxes and transfers* 51,0 50,9 52,5 49,9 49,8 48,8
GINI coefficient after taxes and transfers* 26,9 28,0 28,6 28,2 28,2 28,1
C. Standard Tables  
 
55 Table  C.5: Product market performance and policy indicators  
 
1 Value added in constant prices divided by the number of persons employed.       
2 Compensation of employees in current prices divided by value added in constant prices.       
3 The methodologies, including the assumptions, for this indicator are shown in  detail here: 
http://www.doingbusiness.org/methodology.        
4 Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing ove r 
the past six months, what was the outcome?". Answers were codified  as follows: zero if received everything, one if received 
75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the application is st ill 
pending or don't know.       
5 Percentage population aged 15 -64 havin g completed tertiary education.       
6 Percentage population aged 20 -24 having attained at least upper secondary education.       
7 Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
8 Aggregate OECD indicators of regulation in energy, transport and communications (ETCR).       
Source:  European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation  
indicators); SAFE (for outcome of SMEs' applications for bank loans).  
 
 
Performance indicators 2012 2013 2014 2015 2016 2017
Labour productivity per person1 growth (t/t-1) in %
Labour productivity growth in industry -1,35 2,64 2,78 9,91 -2,07 0,17
Labour productivity growth in construction -6,00 6,04 7,17 0,60 -12,94 12,15
Labour productivity growth in market services -0,81 0,11 -3,31 -0,42 -0,53 3,93
Unit Labour Cost (ULC) index2 growth (t/t-1) in %
ULC growth in industry 4,87 4,13 0,81 -5,41 7,27 5,71
ULC growth in construction 5,46 -3,39 -7,64 -13,66 16,28 -4,65
ULC growth in market services 2,29 0,98 0,26 -2,85 3,44 1,25
Business environment 2012 2013 2014 2015 2016 2017
Time needed to enforce contracts3 (days) 605 605 605 605 605 605
Time needed to start a business3 (days) 7,0 7,0 7,0 7,0 7,0 7,0
Outcome of applications by SMEs for bank loans4: 0,67 1,01 0,39 0,38 0,82
Research and innovation 2012 2013 2014 2015 2016 2017
R&D intensity 1,26 1,39 1,35 1,36 1,20 1,35
General government expenditure on education as % of GDP 4,70 4,60 5,10 5,10 4,90 :
Number of science & technology people employed as % of total 
employment36 37 36 36 36 36
Population having completed tertiary education519 20 20 21 21 21
Young people with upper secondary education683 84 85 84 84 84
Trade balance of high technology products as % of GDP 0,94 0,46 0,28 -0,04 0,24 0,27
Product and service markets and competition 2003 2008 2013
OECD product market regulation (PMR)7, overall 2,11 1,54 1,33
OECD PMR7, retail 0,79 1,44 2,06
OECD PMR7, professional services 2,86 3,02 3,05
OECD PMR7, network industries83,31 1,87 1,73
C. Standard Tables  
 
56  
Table  C.6: Green growth  
 
All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices)  
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)  
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)  
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)  
          Waste intensity: waste (in kg) divided by GDP (in EUR)  
Energy balance of trade: the balance of energy expor ts and imports, expressed as % of GDP    
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP   
Difference between energy price change and inflation: energy component of HICP, and tota l HICP inflation (annual % 
change)  
Real unit energy cost: real energy costs as % of total value added for the economy  
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 E UR)   
Real unit energy costs for manufacturing industry excluding refining : real costs as % of value added for  manufacturing 
sectors  
Share of energy -intensive industries in the economy: share of gross value added of the energy -intensive industries in GDP  
Electric ity and gas prices for medium -sized industrial users: consumption band 500 –20 00MWh and 10 000 –100 000 GJ; figures 
excl. VAT.  
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste  
Public R&D for energ y or for the environment: government spending on R&D for these categories as % of GDP  
Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions  
(excl land use, land use change and forestry) as r eported by Member States to the European Environment Agency.  
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2010 EUR)  
Transport carbon intensity: GHG emissions in tran sport activity divided by gross value added of the transport industry  
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels  
Aggregated supplier concentration index:  covers  oil, gas and coal. Smaller values indicate larger diversification and hence 
lower risk.  
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels  
* European Commissi on and European Environment Agency  
Source:  European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators).  
 
 
Green growth performance 2012 2013 2014 2015 2016 2017
Macroeconomic
Energy intensity kgoe / € 0,25 0,24 0,23 0,23 0,23 0,23
Carbon intensity kg / € 0,61 0,57 0,55 0,56 0,55 -
Resource intensity (reciprocal of resource productivity) kg / € 0,87 0,98 1,21 1,15 1,10 1,13
Waste intensity kg / € 0,17 - 0,16 - 0,14 -
Energy balance of trade % GDP -6,3 -6,3 -6,2 -4,2 -3,2 -3,8
Weighting of energy in HICP % 16,8 17,0 17,0 16,0 15,4 14,7
Difference between energy price change and inflation % 0,3 -11,7 -10,9 -2,7 -0,5 -1,6
Real unit of energy cost% of value 
added19,5 17,8 17,1 18,0 19,0 -
Ratio of environmental taxes to labour taxes ratio 0,15 0,15 0,15 0,15 0,15 -
Environmental taxes % GDP 2,6 2,5 2,5 2,6 2,6 2,5
Sectoral 
Industry energy intensity kgoe / € 0,13 0,15 0,15 0,14 0,15 0,15
Real unit energy cost for manufacturing industry excl. 
refining% of value 
added19,8 17,7 16,4 16,5 16,6 -
Share of energy-intensive industries in the economy % GDP 8,5 7,9 7,9 8,0 8,2 8,2
Electricity prices for medium-sized industrial users € / kWh 0,10 0,10 0,09 0,09 0,08 0,08
Gas prices for medium-sized industrial users € / kWh 0,05 0,04 0,04 0,04 0,03 0,03
Public R&D for energy % GDP 0,01 0,04 0,00 0,01 0,01 0,01
Public R&D for environmental protection % GDP 0,01 0,02 0,01 0,01 0,01 0,01
Municipal waste recycling rate % 25,5 26,4 30,5 32,2 34,7 35,0
Share of GHG emissions covered by ETS* % 35,4 33,2 32,9 32,4 31,6 -
Transport energy intensity kgoe / € 0,76 0,70 0,77 0,82 0,81 0,82
Transport carbon intensity kg / € 2,12 1,94 2,12 2,29 2,23 -
Security of energy supply
Energy import dependency % 50,1 50,1 59,8 53,9 55,8 62,6
Aggregated supplier concentration index HHI 59,2 63,8 75,5 51,1 57,0 -
Diversification of energy mix HHI 0,23 0,22 0,21 0,21 0,22 0,23
 
 
57 Building on the Commission proposal for the next Multi -Annual Financial Framewo rk for the period 
2021 -2027 of 2 May 2018 (COM (2018) 321), this Annex presents the  preliminary Commission services 
views on priority investment areas and framework conditions for effective delivery for the 2021 -2027 
Cohesion Policy. These priority invest ment areas are derived from the broader context of investment 
bottlenecks, investment needs and regional disparities assessed in the report. This Annex provides the 
basis for a dialogue between Hungary and the Commission services in view of the programming  of the 
cohesion policy funds (European Regional Development Fund, Cohesion Fund and European Social Fund 
Plus)  (14). 
Policy Objective 1: A Smarter Europe – Innovative and smart industrial transformation  
Hungary’s overall innovation performance remains moderate relative to that of the EU, while 
investment in research and development and science -business cooperation are below the EU average. 
High priority investment needs  (15) are identified to enhance research and innovation capacities 
and the uptake of a dvanced technologies in the smart specialisation areas and in particular to:  
 support the inter -institutional links and cooperation among stakeholders of research/academia and 
business, build critical research mass and attract talent in the strategic smart  specialisation areas  in 
order to turn research and development results into business applications, especially in cities with 
university capacity;  
 build on the existing research capacities as knowledge centres of smart economic transformation, 
support know ledge transfer and   strategic partnerships;  
 support networking, cooperation and exchange of experience beyond national boundaries, 
including joint cross -regional, transnational and interregional projects.  
High speed broadband coverage will be sufficient by 2021 in Hungary, however it still belongs to the 
low-performing countries in terms of Information and Communications Technology uptake and the 
use of data -driven technologies. Priority investment needs ar e identified to reap the benefits of 
digitalisation for citizens and companies , by:  
 increasing Information and Communications Technology uptake in small and medium -sized 
enterprises, including supporting infrastructures and services, taken into account th e territorial 
differences;  
 improving digital skills,  special attention needed in the education of both sides – consumers and 
business.  
                                                           
(14) This Annex is to be considered in conjunction with the Proposal for a Regulation of the European Parliament and of the Counci l 
on the European Regional Development Fund and on the Cohesion Fund COM(2018) 372 and in the Proposal for a Regulation 
of the European Parliament and of the Council on the European Social Fund Plus COM(2018) 382 and in particular the 
requirements for themati c concentration and urban earmarking outlined in these proposals.  
(15) The intensity of needs is classified in three categories in a descending order – high priority needs, priority needs, needs . ANNEX D : INVESTMENT GUIDANC E ON COHESION POLICY  
FUNDING 2021 -2027 FOR HUNGARY  
D. Investment Guidance on Cohesion Policy Funding 2021 -2027 for Hungary  
 
58 Hungarian small and medium -sized enterprises suffer from low productivity and innovation activity, 
hindering their invo lvement in global value chains. High priority investment needs are identified to 
enhance growth and competitiveness of small and medium -sized enterprises , including in rural 
areas and in particular to:,  
 raise productivity and the value added of the econom y by increasing the number of innovative 
firms, invest in firms' capacity to apply new technologies in order to rank up in global value 
chains;  
 encourage the entrepreneurial ecosystem, foster the creation of start -ups/scale -ups, accelerators, 
develop new b usiness models for small and medium -sized enterprises, in particular through 
investment in intangible;  
 raise competitiveness and internationalisation of small and medium -sized enterprises, also through 
participation in industry led and research driven inte rnational clusters and cooperation among the 
Central and Eastern European and Danube Strategy countries.  
 
Human capital represents a bottleneck to productivity gains.  High priority investment needs are 
identified to  develop skills for smart specialisation, industrial transition and entrepreneurship , 
and in particular through:  
 specific trainings in  re - and upskilling in smart specialisation areas, innovation management, 
entrepreneurship and innovative business models within firms, with attent ion to the need to 
address industrial transition and circularity;  adjust skills development to the business needs.  
Cooperation actions in the context of the EU Strategy for the Danube Region  and the Thematic Smart 
Specialisation Platforms would be benefi cial. To strengthen innovation performance and foster 
productivity growth, smart specialisation areas should be identified on the basis of national and 
regional needs and potential.  
Policy Objective 2: A low carbon and greener Europe – Clean and fair ener gy transition, green 
and blue investment, circular economy, climate adaptation and risk prevention  
As Hungary's economy is relatively energy intensive, energy efficiency gains are as vital as an 
increase of the share of renewables. High priority investmen t needs are identified to increase energy 
efficiency and use of renewable energy , and in particular to:  
 reduce energy consumption levels in residential buildings such as renovation of multi -apartment 
buildings and improving energy efficiency in small and m edium -sized enterprises;  
 improve energy efficiency in public buildings and district heating networks;  
 decrease greenhouse gas emissions and air pollution by replacing fossil -fuelled boilers with 
installations based on renewable or on low carbon -intensive e nergy sources accompanied by 
energy efficiency renovation of buildings;  
 support transition to renewables in heating and cooling, including through joint initiatives under 
the EU Strategy for the Danube Region, such as geothermal and biomass.  
D. Investment Guidance on Cohesion Policy Funding 2021 -2027 for Hungary  
 
59 In Hungary, the main disaster risks are the floods along the Danube and Tisza river and drought 
periods. High priority investment needs are identified to promote climate change adaptation, risk 
prevention and disaster resilience , and in particular to:  
 address risks as identified in the national risks assessment, with the focus on prevention;  
 increase cross -border and transnational co -operation to identify the most suitable climate 
adaptation and risk prevention measures and management measures, including sh aring of best 
practices and developing harmonized data systems.  
Even though the improvement of drinking water infrastructure is ongoing, the need for protection of 
water sources and leaking related losses remain high. Priority investment needs are identif ied to 
promote sustainable water management , and in particular to:  
 improve drinking water supply following the water hierarchy, including leakage reduction of water 
networks, and other efficiency measures; water reuse, for purposes other than drinking wat er (e.g. 
urban irrigation); improve drinking water access in public spaces and for vulnerable and 
marginalised groups; protection of water sources.  
Waste management is still inefficient and Hungary is struggling to meet important EU targets. High 
priority  investments are needed to promote the transition to circular economy ,  in particular:  
 support shifting towards highest steps of the waste management hierarchy: waste prevention, reuse 
and recycling as well as expanding separate collection system;  
 invest i n capacity -building for all stakeholders involved in the transition to circular economy, and 
promote circular economy in small and medium -sized enterprises;  
 develop alternatives to raw materials and promote the use of recycled materials (e.g. actions to 
increase the demand for recycled content, promotion of ‘urban mining’).  
Although Hungary is making efforts to preserve its rich natural heritage and improve its air quality, 
environmental implementation is still a challenge. Priority investments needs are  identified to 
enhance biodiversity, green infrastructure in urban environment and reducing pollution , and in 
particular to:  
 improve air quality and related monitoring and modelling;  
 support for biodiversity and the Natura 2000 network in urban areas.  
Policy Objective 3: A more connected Europe – Mobility and regional ICT connectivity  
D. Investment Guidance on Cohesion Policy Funding 2021 -2027 for Hungary  
 
60 Although Hungary is developing the transport infrastructure, gaps still remain in ensuring modal shift 
from road to more sustainable forms of transport as well as safety a nd security. High priority 
investment needs are identified to develop a sustainable, climate resilient, intelligent, intermodal 
Trans -European Networks for Transport, including improved access to Trans -European 
Networks for Transport, national, regional an d cross border mobility , and in particular to:  
 continue investments in Trans -European Networks for Transport to meet EU standards and 
promote a shift towards sustainable and accessible modes of transport, such as railways, inland 
waterways, in particular D anube navigability in line with the objectives of the EU Strategy for the 
Danube Region, and multi -modal transport,  
 investments into infrastructure safety and security, in particular road safety;  
 investments in Integrated Transport Systems;  
 investments into making the transport system smarter, more connected and cleaner . 
Based on sustainable multimodal urban mobility plans and bad air quality levels, high priority 
investments need are identified to promote sustainable urban mobility , in particular to:  
 investments in low -carbon public transport and active modes of transport, like biking and walking;  
 investments reducing the negative externalities of transport, in particular congestion, emissions, 
and traffic accidents by fostering sustainable and accessib le modes like regional/light railways, 
multi -modal transport, cycling, including cycle transportation on public transit services).  
Policy Objective 4: A more social Europe – Implementing the European Pillar of Social Rights  
Targeted investment in employm ent, social, educational and healthcare including infrastructure in 
lagging regions(16) and for disadvantaged groups will be key to foster development in Hungary.  
Persistent skills mismatches are coupled with weak labour market prospects for the low skilled and 
less employable cohorts. Priority investment needs are therefore identified to improve access to 
employment, in particular for youth, long -term unemployed an d inactive people , and notably to:  
 support active and preventive labour market measures, including skills anticipation, personalised 
services, coordination with other services, including for persons with disabilities;  
 devise outreach measures to the inacti ve; 
 foster bipartite social dialogue and support social partners in capacity building . 
A high gender employment gap is coupled with low availability of early childcare. Priority investment 
needs are therefore identified to promote women’s labour market pa rticipation and a better 
work/life balance , and in particular to:  
 promote access to affordable, sustainable and high -quality childcare, including through 
infrastructure, with focus on rural areas; promote sharing responsibilities among parents and 
flexible  working arrangements.  
                                                           
(16) Especially in the disadvantaged territories as defined by  the 311/2007 Government Decree.  
D. Investment Guidance on Cohesion Policy Funding 2021 -2027 for Hungary  
 
61 Educational outcomes are relatively low and characterised by high inequalities, prospects for 
vocational education and training graduates are weak and participation in adult learning is inadequate. 
High priority investment needs are  therefore identified to improve the quality and labour market 
relevance of education and training and equal access to it , and in particular to:  
 prevent early school leaving and support young people not in education or training;  
 reduce exclusion  and suppor t access to, and completion of, higher levels of education and training 
among disadvantaged groups, including Roma;  
 strengthen basic skills, including digital skills in vocational education and training and general 
education, key competences and  smooth transition to work;  
 promote adult learning via upskilling and reskilling;  
 support infrastructure development in educa tion and training.  
Material deprivation among certain groups and in certain regions remains high. High priority 
investment needs  are therefore identified to  promote the integration of marginalised communities 
and to address material deprivation, and in p articular to:  
 develop social and educational measures, including infrastructure, in disadvantaged districts;  
 tackle housing exclusion and regenerate deprived urban and rural areas;  
 design measures to overcome discrimination against marginalised communities , such as Roma;  
 improve services for people with disabilities, and physical accessibility to public institutions.  
The health status of the population shows high levels of inequalities. Priority investment needs are 
identified to enhance access to services , including health - and long -term care,  in particular to:  
 foster access to affordable healthcare, reducing inequalities, especially in disadvantaged districts;  
 provide infrastructure, including primary care facilities, and healthcare equipment;  
 support the  transition from institutional care to independent living community -based services.  
Policy Objective 5 –  A Europe  closer  to  citizens  by  fostering  the  sustainable  and  integrated  
development  of urban, rural and coastal areas and local initiative s 
There are high priority territorial disparities (across regions and urban -rural) affecting various policy 
areas requiring a more tailor made and differentiated approach. High priority investment needs are 
identified to foster the integrated social, economic, cultural and environmental development in 
urban areas, and in particular to : 
 investing in the specific potentials of selected functional urban areas as university centres, places 
of innovation, science and technology, and tackle the specific urba n challenges, differentiated 
based on the local needs;  
 in case of small and medium sized cities, polycentric development and urban -rural linkages should 
D. Investment Guidance on Cohesion Policy Funding 2021 -2027 for Hungary  
 
62 be more heavily supported to tackle depopulation, accessibility of jobs, infrastructure and services;  
 support for cooperation activities both inside the country and also  cross -border.  
High priority investment needs are identified to foster the integrated social, economic, cultural and 
environmental development, including in rural areas, and in particular to : 
 investing in the rural areas of the regions lagging behind by addressing their infrastructure gap and 
other identified development needs, by paying special attention to the most deprived areas and 
ensuring the adequate access to basic services (e.g. heal th, education, social services) and jobs;  
 support the non urban areas by focusing on endogenous local development based on existing assets 
and creating the conditions for the inhabitants for self -realisation (including investments in 
depopulating areas an d nationally recognized tourism regions) through integrated approaches;  
 support for cooperation activities both inside the country and cross -border.  
Factors for effective delivery of Cohesion policy  
 strengthened capacity of all beneficiaries (including regional and local authorities), social partners 
(including through more meaningful social dialogue), and civil society organisations and development 
of a partnership based model to implementation;  
 improved public procurement performance, in particular inc reased competition and transparency;  
 improved measures to prevent and address conflict of interest, fraud and corruption;  
 development and implementation of a roadmap on administrative capacity building necessary for the 
effective administration and impleme ntation of the Funds in the field of public procurement, 
transparency and fight against corruption;  
 use of financial instruments and/or contributions to Hungary's compartment under InvestEU for 
revenue -generating and cost -saving activities;  
 effective deliv ery of the policy objectives through innovative actions, including social innovation.  
 
 
 
 
63 Acemoglu,  D. and Robinson, J.A. (2010), The Role of Institu tions in Growth and Development , Review 
of Economics and Institutions , 2010 Fall: 1 -33. (http://www.rei.unipg.it/rei/articl e/view/14/22 ) 
Adalet McGowan, Müge, Dan Andrews  and Valentine Millot (2017) , Insolvency regimes, zombie firms 
and capital reallocation , OECD Economics Department Working Papers, No. 1399.  
Akcigit U ., S. Baslandze and F. Lotti  (2018 ) 'Political connections,  innovation, and firm dynamics ', VOX  
CEPR Policy Portal , November 2018. ( https://voxeu.org/article/political -connections -innovation -and-
firm-dynamics ) 
Alapvető Jo gok Biztosának Hivatala (AJBH ) (2018) , A jövő nemzedékek szószólójának elvi állásfoglalása 
a hulladékgazdálkodási közszolgáltatás működési problémáiról , Alapvető Jogok Biztosának Hivatala, 
Budapest. 
(https://www.ajbh.hu/documents/10180/2896961/a_hulladekgazdalkodasi_kozszolgaltatas_mukodesi_pro
blemairol.pdf  ) 
Alpek, Levente B., Róbert Tésits and László Bokor (2016) , Group -specific ana lysis of commuting in the 
most disadvantaged areas of Hungary , Regional Statistics , Vol. 6 No. 1, pp. 54 -81. 
Andrews, Dan and Philippos Petroulakis (2017) , Breaking the Shackles: Zombie Firms, Weak Banks and 
Depressed Restructuring in Europe , OECD Economic s Department Working Papers, No. 1433.  
Badarinza, Cristian and Tarun Ramadorai (2018) , Home Away from Home? Foreign Demand and 
London House Prices , Journal of Financial Economics , vol. 130 no. 3, 532 -555. 
Banai, Ádám, Péter Lang, Gábor N agy and Márton Stancsics (2017), Impact evaluation of EU subsidies 
for economic development on the Hungarian SME sector , MNB Working Papers 8.  
Bartus, Tamás (2011) , Commuting Time, Wages and Reimbursement of Travel Costs. Evidence from 
Hungary , Review of S ociology , 2011/4, pp. 72 -94. 
Bauer, Péte r and Marianna Endrész (2018), Firm Dynamics and Aggregate Growth: The Case of 
Hungary , Financial and Economic Review , Magyar Nemzeti Bank (Central Bank of Hungary), Volume 
17, Issue 2, pp. 68 -98. 
Bruinshoofd, A. (20 16), Institutional quality and economic performance , RaboResearch, Utrecht. 
(https://economics.rabobank.com/publications/2016/january/in stitutional -quality -and-
economicperformance/ ) 
Bertelsmann Stiftung (2018 ), Policy Performance and Governance Capacities in the OECD and EU , 
Sustainable Governance Indicators 2018.  
CASE et al. (2018), Study and Reports on the VAT Gap in the EU -28 Member St ates: 2018 Final Report.  
(https://ec.europa.eu/taxation_customs/sites/taxation/files/2018_vat_gap_report_en.pdf ) 
Cecchetti, Stephen and Enisse Kharroubi (2015) , Why Does Financial Sector Growth Crowd Out Real 
Economic Growth? , CEPR Discussion Papers No. 10642.  
Christidis, Panayotis and I., Juan Nicolás (2012), Measuring road congestion, JRC Scientific and policy 
reports , European Commission, Luxembourg: Pu blications Office of the European Union, 2012.   
Corruption Research Center Budapest (CRCB) (2015), Impact Assessments, Public Consultation and  
legislation in Hungary 2011 -2014 , CRCB, Budapest. (http://crbc.eu ) REFERENCES  
References  
 
 
64 Corruption Research Center Budapest (CRCB) (2016), Report on the Quality of Hungarian Legislation –
2015 , CRCB, Budapest. (http://crbc.eu ) 
Corruption Research Center Budapest (CRCB) (2017a), Report on the Quality of Hungarian Legislation –
2016 , CRCB, Budapest. (http://crbc.eu ) 
Corruption Resear ch Center Budapest (CRCB) (2018 a), Adathiányok, versenyerősség és korrupciós 
kockázatok, Magyar közbeszerzési szerződések adatainak elemzése, 2005 január – 2018, augusztus I. 
Gyorsjelentés , 2018, CRCB, Budapest. ( http://crbc.eu ) 
Corruption Resear ch Center Budapest (CRCB) (2018b ), A research note based on Hungarian public 
procurement data , January 2018, CRCB, Budapest. ( http://crbc.eu ) 
Council of Europe (2018), European Commissioner for Human Rights, Statement of 14.12.2018  
DUIHK (2018), Konjunktúrajelentés 2018 , Német -Magyar Ipari és Kereskedelmi Kamara, 2018, 
Budapest.  
Duval, Romain, Gee He e Hong and Yannick Timmer (2017) , Financial Frictions and the Great 
Productivity Slowdown , IMF Working Papers No. 17/129.  
Educational Authority (EA) (2018a), Végzettség nélküli iskolaelhagyás.  
(https://www.oktatas.hu/kozneveles/vegzettseg_nelkuli_iskolaelhagyas ) 
Educational Authority (EA) (2018b), Országos kompetenciamérés 2017 – Országos jelentés. 
(https://www.kir.hu/okmfit/files/OKM_2017_Orszagos_jelentes.pdf ) 
EIB (2018): EIB Group Survey on Investment and Investment Finance Country Overview: Hungary , 
European Investment Bank, Luxembourg.  
Éltető, Andrea and Katalin Antalóczy (2017) , FDI promotion  of the Visegrád countries in the era of 
global value chains , IWE Working Papers No. 229, Institute for World Economics, Centre for Economic 
and Regional Studies, Hungarian Academy of Sciences.  
Ercse, Krisztina, (2018), Az állam által ösztönzött, egyházass zisztált szegregáció mechanizmusa, in  Én 
Vétkem: Helyzetkép az oktatási szegregációról , ed.Fejes, József Balázs, and Szűcs, Norbert (2018).  
Ercse, Krisztina, Radó, Péter, The impact of the privatisation of school network in Hungary , forthcoming 
2019.  
Eurobarometer 470 (2017), TNS Opinion, Brussels. DOI:10.2837/513267  
(http://ec.europa.eu/commfrontoffice/publicopinion/index.cfm/ResultDoc/downl oad/DocumentKy/81007 ) 
European Commission (201 7a), CAP context indicators (2014 – 2020).  
(https://ec.europa.eu/agriculture/cap -indicators/context/2017/full -text_e n.pdf )  
European Commission (201 7b), Regional Innovation Scoreboard 2017 . 
European Commission (2017c), Flash Eurobarometer 457: Businesses’ attitudes towards corruption in the 
EU.(http://ec.europa.eu/commfrontoffice/publicopinion/index.cfm/Survey/getSurveyDetail/instruments/F
LASH/surveyKy/2177 ) 
References  
 
 
65 European Commission (2018 a), Quarterly Report on the Euro Area , Volume 17, No. 3. Eur opean 
Economic Institutional Papers 093, European Commission.  
European Commission (2018 b), The 2018 Ageing Report: Economic and Budgetary Projections for the 
EU Member States (2016 -2070),  Institutional Paper 079. May 2018. Brussels.  
European Commission (2018 c), Labour market and wage developments in Europe , Annual Review 2018 . 
European Commission (2018d ), Proposal for a Council recommendation on access to social protection for 
workers and the self -employed, Strasbourg.  
European Commission (2018 e), Education and Training MONITOR 2018 , Luxembourg: Publications 
Office of the European Union, 2018 .  (https://ec.europa.eu/education/sites/education/files/document -
library -docs/volume -1-2018 -education -and-training -monitor -country -analysis.pdf ) 
European Commission (2018 f), European Innovation Scoreboard 2018 , Luxembourg: Publications Office 
of the European  Union, 2018 . 
European Commission (2018 g), The early warning report for Hungary , Commission staff working 
document , 419 final, 2018. Brussels.  
European Commission (2018h),  SBA Fact Sheet Hungary 2018.  
European Commission (2018 i), Connectivity, Digital Economy and Society Index Report 2018 , pp. 6 -10.  
European Commission (2018 j), Annual Growth Survey 2019: For a stronger Europe in the face of global 
uncertainty , 2018.  
European Commission (2019 ), Fiscal Sustainability Report 2018 , Institutional Paper 094 . January 2019. 
Brussels.  
European Environment Agency (EEA) (2018),  Air Quality in Europe – 2018 Report . 
(https://www.eea.europa.eu/highlights/air -pollution -still-too-high) 
European University Association (EUA) (2017a), University Autonomy in Europe III, The Scorecard 
2017 . (http://www.eua.be/Libraries/publications/University ) 
European University Association (EUA) (2017b), EUA calls on governments to refrain from interference 
in university autonomy.  (https://eua.eu/news/141:european -universities -call-on-hungarian -president -to-
block -legislation -targeting -central -european -university.html ) 
Falk, Armin, Anke Becker, Thomas Dohmen, Benjamin Enke, David Huffman and Uwe Sunde (2018), 
Global Evidence on Economic Preferences, Quarterly Journal of Economics , Volume 133, Issue 4, pp. 
1645 –1692.  
Fazekas, K. and J. Köllő (ed.) (2018), The Hungarian Labour Market 2017 , Hungarian Academy of 
Sciences, Budapest. (http://www.mtakti.hu/wp -content/uploads/2018/06/HLM2017_onefile.pdf )  
Fertig , M. and  Csillag  M., (2015) , Cost–benefit analysis of remedial interventio ns for the long -term 
unemployed , ICON -INSTITUT , 2015.  
References  
 
 
66 Fournier, J. -M., and A. Johansson (2016), The effect of size and the mix of public spending on growth  
and inequality, ECO/WKP(2016)68, OECD, Paris. http://www.oecd.org/eco/public -finance/The -effectof -
the-size-and-the-mix-of-public -spending -on-growth -and-inequality -working -paper.pdf  
Gopinath, Gita, Şebnem Kalemli -Özcan, Loukas Karabarbounis and Carolina Villegas -Sanchez (2017) , 
Capital Allocation and Productivity in South Europe, Quarterly Journal of Economics , Volume 132, Issue 
4, pp. 1915 -1967.  
Government  of Hungary (Government) (2016), Fokozatváltás a felsőoktatásban középtávú szakpolitikai 
stratégia 2016 . 
http://www.kormany.hu/download/c/9c/e0000/Fokozatv altas_Felsooktatasban_HONLAPRA.PDF  
Government (2018), A kormány döntött a gyermekek otthongondozási díjának bevezetéséről. 
http://www.kormany.hu/hu/emberi -eroforrasok -miniszteriuma/csalad -es-ifjusagugyert -felelos -
allamtitkarsag/hirek/a -kormany -dontott -a-gyermekek -otthongondozasi -dijanak -bevezetesero  
GRECO  (2015) , Fou rth Evaluation Round – Evaluation Report Hungary, Adopted by GRECO at its 67th 
Plenary Meeting (Strasbourg, 23 -27 March 2015), paragraphs 95 and 111  
GRECO (2018),  Interim Fourth Round Compliance Report on Hungary (GrecoRC4(2018)16)  
Habitat for Humanity Mag yarország (Habitat) (2018), Éves jelentés a lakhatási szegénységről 2018 . 
(https://habitat.hu/mivel -foglalkozunk/lakhatasi -jelentesek/lakhatasi -jelentes -2018/)  
Hárs Á., (201 8), 'Növekvő elvándorlás – lehetőségek, remények, munkaerőpiaci hatások ', Társadalmi 
Riport , TÁRKI, Budapest . (http://www.tarki.hu/sites/default/files/trip2018/081 -
105_Hars_elvandorlas.pdf ) 
Horváth, Krisztina and László Szerb (2016) , GEM 2015 Magyarország: Vállalkozások és vállalkozói 
ökoszisztéma helyzete 2015 -ben, Globális Vállalkozói Monitor Magyarország Jelenté sek, Pécsi 
Tudományegyetem Közgazdaságtudományi Kar. DOI: 10.13140/RG.2.2.23616.33282  
Hungarian Academy of Sciences (HAS) (2018a), A közoktatás indikátorrendszere 2017 . 
(http://www.mtakti.hu/wp -content/uploads/2018/02/A_kozoktatas_indikatorrendszere_2017.pdf ) 
Hungarian Academy of Sciences (HAS) (2018b) The Academy stands by its independence and the 
freedom of research . http://mta.hu/english/the -academy -stands -by-its-independence -and-the-freedom -of-
research -108816  
Hétfa  Kutatóintézet (2018) , A Nemzeti Foglalkoztatási Szolgálat ügyfél -kategor izálási rendszerének 
értékelése,  February 2018, Budapest.  
Hungarian Central Statistical Office (HSCO) (2017a), A háztartások életszínvonala, 2016 . 
(https://www.ksh. hu/docs/hun/xftp/idoszaki/hazteletszinv/hazteletszinv16.pdf ) 
Hungarian Central Statistical Office (HSCO) (2017b), Regional Statistical Yearbook of Hungary, 2016 , 
Budapest.  
Hungarian Central Statistical Office (HSCO) (2017c), Yearbook of Welfare Statistics , 2016 , Budapest.  
Hungarian Central Statistical Office (HCSO) (2018 a): Lakáspiaci árak, lakásárindex, 2018. I. negyedév. 
Statisztikai Tükör, 2018. július 26. Központi Statisztikai Hivatal.  
References  
 
 
67 Hungarian Central Statistical Office (HCSO ) (2018 b), Hungarian Cen tral Statistical Office, A gyermekek 
napközbeni ellátása , 2017 , Statisztikai tükör, January 2018 , Budapest.  
Hungarian Central Statistical Office ( HCSO ) (2018 c), Hungarian Central Statistical Office , 
Munkaerőpiaci helyzetkép, 2014 –2018 . November 2018, Budap est. 
(http://www.ksh.hu/docs/hun/xftp/idoszaki/munkerohelyz/munkerohelyz17.pdf ) 
Hungarian Central Statistical Office  (HCSO) (2018d ), Yearbook of Housing Statistics 2017 , Budapest.  
Hungarian Central Statistical Office (HCSO) (2018e ), Központi Statisztikai Hivatal  - Nemzeti Társadalmi 
Felzárkózási Stratégia  indikátor rendszer . 
Imai, Kentaro (2016) , A panel study of zombie SMEs in Japan: Identification, borrowing and in vestment 
behavior, Journal of the Japanese and International Economies , Volume 39, pp. 91 -107. 
IM (2017), Minister of Justice Decree No. 14 of 2017 (X.31) IM amending Decree 7 of 2011 (III.4.) 
KIM.  
IMD (2018), IMD World Competitiveness Rankings 2018  
Jakab,  A. and Gy. Gajduschek (2018), Jogállamiság, jogtudat, normakövetés, Társadalmi Riport 2018 , 
Tárki. 
Jancsik, A., G. Mi chalkó and M. Csernyik (2018), Megosztás megosztottság nélkül – az Airbnb és a 
budapest i szálláshelypiac átalakulása , Közgazdasági Szemle , vol. 65 no. 3, pp. 259 -286. 
Kállay, László (2015), Állami támogatások és gazdasági teljesítmény. Támogatás -túladagolás a magyar 
gazdaságfejlesztésben?,  Közgazdasági Szemle , Volume 61, Issue 3, pp. 279 -298. 
Kovács, Zoltán and Iván Tosics (2014), Urban Sprawl on the Danube: The Impact  of Suburbanization in 
Budapest , in: Kiril Stanilov and Ludĕk Sýkora (eds.), Confronting Suburbanization: Urban 
Decentralization in Postsocialist Central and Eastern Europe , Wiley and Sons, pp. 33 -64. 
Magyar Közút  (2018), Az  állami közúthálózat fő jellemzői 2018. http://internet.kozut.hu/Lapok/az -
allami -kozuthalozat -fo-jellemzoi.aspx  
Magyar Nemzeti Bank ( MNB ) (2018 a): Housing Market Report , November 2018 . Magyar Nemzeti Bank.  
Magyar Nemzeti Bank (MNB) (2018b): Financial Stability Report , November 2018, Magyar Nemzeti 
Bank.  
Magyar Nemzeti Bank (MNB) (2018c), Növeked ési jelent és 2018 , Magyar Nemzet i Bank , Budapest.  
Muraközy, Balázs, Márta Bisztray and Balázs Reizer (2018) , Productivity differences in Hungary and 
mechanisms of TFP growth slowdown , Research paper commissioned by DG GROW, European 
Commission, Brussels.  
National Judicial Council ( NJC) (2018): Decision No. 60/2018. (V. 02.) OBT, 
(https://orszagosbiroitanacs.hu/2018 -05-16/#) 
National Office for the Judiciary ( NOJ) (2018):  
(https://birosag.hu/hirek/kategoria/birosagokrol/kiemelkedo -erdeklodes -kozigazgatasi -biroi -allashelyek -
irant) 
References  
 
 
68 OECD (2014), The Distributional Effects of Consumption Taxes in OECD countries , OECD Tax Policy 
Studies, No. 23, OECD, Paris . 
OECD (2016), OECD Economic Surveys: Hungary 2016 , Paris.  http://dx.doi.org/10.1787/eco_surveys -
hun-2016 -en 
OECD  (2017 ), ‘Hungary’, in Education at a Glance 2017: OECD Indicators . DOI: 
https://doi.org/10.1787/eag -2017 -50-en 
OECD (2018 a), Education at  a Glance 2018: OECD Indicators , OECD Publishing, Paris.  
http://dx.doi.org/10.1787/e ag-2018 -en 
OECD (2018 b), A Broken Social Elevator? How to Promote Social Mobility . 
(http://dx.doi.org/10.1787/9789264301085 -e) 
OECD  (2018 c), Teachers' actual salaries relative to earnings of tertiar y-educated workers.  
(https://stats.oecd.org/Index.aspx?DataSetCode=EAG_TS_ACT ) 
Ombudsman (2017), Az alapvető jogok biztosának jelentése az AJB -360/2017. számú ügyben.  
https://docplayer.hu/40214275 -Az-alapveto -jogok -biztosanak -jelentese -az-ajb-360-2017 -szamu -ugyben -
elozmeny -szam -ajb-986-2016.html  
Pálinkó, Éva and Tamás Tóth (2017) , Efficient Bankruptcy and Reorganisation in Domestic Practice, 
Public Finance Quarterly , State Audit Office of Hungary, Volume 62, Issue 3, pp. 326 -347. 
Pásztóy A., (2018), A hatékony érdekegyeztetés intézmén yei – hova jutottunk el 2018 -ra, 2018,  
ujegyenloseg.hu . 
Pogonyi, Csaba Gábor (2014), Unemployment and Public Transportation: Evidenc e from Hungarian 
Municipalities , M.A. Thesis, Central European University, Budapest.  
Poschke, Markus  (2013): ’Entrepreneurs out of necessity’: a snapshot, Applied Economics Letters , 
Volume 20, Issue 7, pp. 658 -663. 
Portfolio (2018), Ebbe belerokkanhat Magyarorszá g - Több százezres kivándorlási hullám fenyeget , July 
2018. https://www.portfolio.hu/gazdasag/ebbe -belerokkanhat -magya rorszag -tobb-szazezres -kivandorlasi -
hullam -fenyeget.293014.html  
Public Procurement Authority (PPA) (2018), A Közbeszerzési Hatóság Elnökének tájékoztatója a 
közbeszerzések 2017. évi alakulásáról , 2018, Budapest. 
(http://www.kozbeszerzes.hu/cikkek/kozbeszerzesi -hatosag -elnokenek -tajekoztatoja -kozbeszerzesek -
2017 -evi-alakulasarol ) 
State Audit Office (SAO) (2018), Elemzés a köztu lajdonú gazdaságitársaságok 2017. évi integritási 
helyzetéről  (Analysis of the state of integrit y of publicly owned enterprises), Budapest. 
(https://asz.hu/storage/files/files/Publikaciok/Elemzesek_tanulmanyok/2018/integritas_elemzes_2018042
5.pdf?ctid=1237 ) 
Tóth, I. Gy. and I. Szelényi (2018), Bezáródás és fluiditás a magyar társadalom szerkezetében , in TÁRKI, 
Társadalmi Riport  2018 . http://www.tarki.hu/sites/default/files/trip2018/025 -046_Toth -
Szelenyi_felso_kozeposztaly.pdf  
Transparency International  (TI) (2019 ), Corru ption Perceptions Index 2018.  
References  
 
 
69 Venice Commission (2012a): Opinion on the Cardinal Acts on the Judiciary that were amended following 
the adoption of Opinion CDL -AD(2012)001 on Hungary, adopted by the Venice Commission at its 92nd 
Plenary Session (Venice, 12 -13 October 2012)  
Venice Commission (2012b): Opinion on Act CLXIII of 2011 on the Prosecution Service and Act CLXIV 
of 2011 on the Status of the Prosecutor General, Prosecutors and other Prosecution Employees and the 
Prosecution Career of Hungary, adopted b y the Venice Commission at its 91st Plenary Session (Venice, 
15-16 June 2012)  
Verner, Emil and Győző Gyöngyösi (2018): Household Debt Revaluation and the Real Economy: 
Evidence from a Foreign Currency Debt Crisis , mimeo, 
(https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3241309 ) 
Vértesy , László (2016): Public Participation in the Dra fting of Legislation in Hungary,  In: International 
Public Administration Review , 14(4), 115 –135.  
WB-PWC (World Bank and Pricewaterhouse Coopers) (2019), Paying taxes 2019 , PWC, World Bank 
Group. (https://www.pwc.com/gx/en/paying -taxes/pdf/pwc -paying -taxes -2019.pdf ) 
Wood, S. and M. Bellis (2017), Socio -economic inequalities in alcohol consumption and harm: Evidence 
for effective interventions and policy across EU countries , European Commission. 
(https://ec.europa.eu/health/sites/health/files/social_determinants/docs/hepp_screport_alcohol_en.pdf )  
World Economic Forum (WEF) (2018),  The Global Competitiveness Report 2018 , World Economic 
Forum.  
World Econom ic Forum (WEF) (2017), The Global Competitiveness Report 2017 –2018 . 
(https://www.weforum.org/reports/the -global -competitiveness -report -2017 -2018 -1) 
World Health O rganization (WHO) (2018), Global status report on alcohol and health 2018 . 
(http://www.who.int/substance_abuse/publications/global_alcohol_report/en/ ) 
World Justice P roject (WJP) (2015), The WJP Open Government Index . 
(https://worldjusticeproject.org/our -work/wjp -rule-law-index/wjp -open -government -index -2015 ) 
Worl dwide Governance Indicators ( WGI ) (2018 ), The Worldwide Governance Indicators, 2018 Update . 
ZEW (Centre for European Economic Research GmbH) (2016), The Impact of Tax Planning on Forward -
looking Effective Tax Rates , Taxation Papers No. 64 Publications Office of the European Union, 
Luxembourg.  (https://ec.europa.eu/taxation_customs/sites/taxation/files/taxation_paper_64. pdf)