COMMISSION STAFF WORKING DOCUMENT Assessment of the 2012 national reform programme and convergence programme for HUNGARY Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Hungary's 2012 national reform programme and delivering a Council opinion on Hungary's updated convergence programme , 2012-2015
Date: 2012-05-30
Institutions: European Commission
Subjects: Hungary, Roma, administrative formalities, budgetary equilibrium, dropout, economic stabilisation, employment service, energy grid, free competition, innovation, means of public conveyance, public debt, tax reform

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
SWD(2012) 317 final 

COMMISSION STAFF WORKING DOCUMENT 

Assessment of the 2012 national reform programme and convergence programme for 
HUNGARY 

Accompanying the documentRecommendation for a  

COUNCIL RECOMMENDATION  

on Hungary's 2012 national reform programme and delivering a Council opinion on 
Hungary's updated convergence programme , 2012-2015 

{COM(2012) 317 final} 

EN 

   EN 

 
 
 
 
  
 
 
 
CONTENTS 

Executive summary.....................................................................................................................3 

1. 

2. 

Introduction...................................................................................................................4 

Economic developments and challenges ......................................................................5 

2.1. Recent economic developments and outlook.......................................................................5 

2.2. Challenges............................................................................................................................6 

3. 

Assessment of policy agenda........................................................................................9 

3.1. Fiscal policy and taxation ....................................................................................................9 

3.2. Financial sector ..................................................................................................................17 

3.3. Labour market, education and social policy ......................................................................18 

3.4. Structural measures promoting growth and competitiveness ............................................22 

3.5. Modernisation of public administration.............................................................................24 

4. 

5. 

Overview table............................................................................................................27 

Annex..........................................................................................................................31 

2 

 
 
 
EXECUTIVE SUMMARY 

In  2012,  the  economic  activity  of  Hungary  is  expected  to  contract  by  0.3%,  before 
regaining  some  momentum  in  2013.  Unemployment  is  foreseen  to  slightly  decrease  to 
10.6% in 2012 and to fall further in 2013. 

In  the  context  of  the  overall  consolidation  process  and  following  a  Council  decision  in 
January  2012  that  Hungary  had  not  taken  effective  action,  the  government  undertook 
efforts to secure the budgetary targets for 2012 and also in 2013 when substantial one-off 
revenues  are  phased  out.  There  have  been  first  steps  to  broaden  the  remit  of  the  Fiscal 
Council but it still does not include crucial tasks and multiannual fiscal planning remains 
indicative. Further, the Hungarian government has pursued an extensive structural reform 
agenda including key elements targeting the labour market as well as steps to reform the 
business environment. In several areas, policy responses remained rather incomplete. 

Hungary  continues  to  face  serious  challenges  in  the  short  to  medium  term.  The 
attainment of the deficit target of 2.5 % of GDP in 2012 and 2.2 % of GDP in 2013 will 
have to be ensured in a sustainable way. The already adopted cardinal law on economic 
stability  does  not  include  a  binding  medium-term  budgetary  framework.  Further,  the 
recent  tax  changes  have  negatively  impacted  low  earners  and  have  therefore  not 
contributed  to  enhancing  employment.  The  public  employment  service  has  been 
reorganised resulting in an overall downsizing, pointing in the opposite direction of what 
was recommended in 2011. A further challenge relates to the transparency and quality of 
public  administration,  where  Hungary  ranks  low  on  many  indicators.  The  equity  and 
effectiveness  of  the  school  system  is  also  of  concern,  especially  with  regard  to  recent 
legislative  changes  that  risk  increasing  the  number  of  early  school  leavers  and 
segregation in the Hungarian school system. 

3 

 
 
1. 

INTRODUCTION 

In  June  2011  the  Commission  proposed  five  country-specific  recommendations  (CSRs) 
for economic and structural reform policies for Hungary. In July 2011 the Council of the 
European  Union  adopted  these  recommendations  which  concerned  public  finances, 
including fiscal governance, the labour market, and the business environment (lowering 
administrative  burden  and  improving  access  to  non-bank  funding).  In  November  2011 
the Commission published its Annual Growth Survey for 2012 (AGS 2012) in which it 
set  out  its  proposals  for  building  the  necessary  common  understanding  about  the 
priorities for action at national and EU level in 2012 and encouraged Member States to 
implement these priorities in the 2012 European semester. 

Against this background, Hungary presented updates of its National Reform Programme 
(NRP) and Convergence Programme (CP) in April 2012. These programmes give details 
on  progress  made  since  July  2011  and  plans  going  forward.  This  Staff  Working 
Document  assesses  the  state  of  implementation  of  the  2011  CSRs  and  it  identifies 
Hungary's  current  policy  challenges  in  light  of  the  AGS  2012  and  the  country’s  latest 
policy plans. 

Overall assessment  

Hungary's progress towards meeting the 2011 Council recommendations has been mixed. 
The  Council  decided  in  January  2012  that  Hungary  had  not  taken  effective  action  in 
response to its recommendations under the Excessive Deficit Procedure and in March it 
issued  new  recommendations,  following  which  the  Hungarian  authorities  decided  on 
further consolidation measures in April. The Fiscal Council's remit has been broadened 
but  it  still  does  not  include  crucial  tasks  (e.g.  regular  publication  of  macro-fiscal 
baselines),  and  multiannual  fiscal  planning  remains  indicative.  The  government  has  an 
extensive structural reform agenda with several elements targeting the labour market, and 
notable  advances  have  been  made.  Nevertheless,  policy  responses  in  areas  such  as 
taxation, encouraging women's participation in the labour market or active labour market 
policies  have  been  piecemeal,  or  otherwise  problematic.  Steps  have  also  been  taken  to 
reform the business environment, but progress has not been uniform. 

The challenges identified in July 2011 and re-iterated in the AGS 2012 therefore remain 
valid.  Fiscal  consolidation  is  a  pressing  challenge  for  Hungary,  but  wider  reforms  also 
remain  necessary  to  promote  the  conditions  for  sustainable,  investment-led  growth. 
Hungary faces ongoing challenges to raise the participation rate and the employment rate, 
to improve active labour market policies and social inclusion, particularly in education, 
to  broaden  access  to  high  quality,  affordable  childcare,  to  reduce  the  administrative 
burden and improve the business environment, as well as improving the transparency and 
quality of public administration.  

Hungary's  2012  NRP  and  convergence  programme  contain  significant  measures  whose 
specification  (where  still  necessary)  and  implementation  could  facilitate  the  progress 
towards  addressing  key  challenges.  Nevertheless,  steps  could  be  taken  to  ensure  that 
policymaking supports these goals more coherently and efficiently.  

4 

 
 
2. 

ECONOMIC DEVELOPMENTS AND CHALLENGES 

2.1. Recent economic developments and outlook  

Recent economic developments 

The  Hungarian  economy  started  2011  amidst  a  number  of  indicators  pointing  towards 
accelerating  real  GDP  growth  to  close  to  3%  supported  by  a  slow  rebalancing  in  the 
economy. The developments over the course of the year led to a significant revision of 
this  picture  given  the  deterioration  of  the  external  environment  which  played  out  over 
several channels  (a  decline in  external  demand,  higher  funding costs, hiking instalment 
payments on foreign currency denominated loans), as well as squeezed domestic demand 
and  policy  uncertainties.  GDP  growth  in  2011  turned  out  to  be  at  1.7%  as  the  main 
engine of the economy was the export sector, which will continue to drive growth over 
the forecast horizon. 

Economic outlook 

In the 2012 Spring Forecast, the Commission services project GDP to contract by 0.3% 
in 2012, and to recover to a modest growth rate of 1% in 2013. This does not incorporate 
the GDP flash estimate for the first quarter which showed a much stronger-than-expected 
contraction of 1.3%. The ongoing deleveraging in the enterprise and household sectors is 
expected to remain pronounced, with credit supply constraints remaining significant and 
biting especially for corporations. Against this background, the newly specified measures 
in  Hungary's  2012  convergence  programme  will  further  depress  domestic  demand.  In 
particular,  in  2013  the  financial  transaction  tax  is  the  new  measure  that  is  expected  to 
have the largest negative impact on the economy. It is anticipated to depress gross fixed 
capital  formation  as  it  will  primarily  affect  companies  (depending  on  the  eventual 
legislative details it may put a further drag on bank lending), but it is also projected to 
have  a  substantial  negative  impact  on  private  consumption  expenditure.  The  enterprise 
sector will be further hit by the redesigned insurance and energy levies, and some of the 
measures introduced in the course of 2012, including the new telecommunications levy, 
will have an additional negative impact as they will be in force throughout 2013.  

Although  Hungary's  largest  export  markets  are  projected  to  be  growing  at  a  lower  rate 
than  anticipated  at  the  time  of  the  autumn  2011  forecast,  the  lower  import  projections 
mean  that  the  contribution  of  net  exports  to growth will remain  significant. Hungary is 
also  expected  to  gain  market  share  as  a  result  of  new  automobile  factories  coming  on 
line, starting in the second quarter of 2012. The current account is estimated to increase 
further over the forecast horizon. The new tax measures also imply that inflation is likely 
to  remain  well  above  the  central  bank's  target  rate  over  the  forecast  horizon.1 
Unemployment  is  expected  to  decline  from  this  year,  with  Hungary's  expanding  public 
works scheme to provide most of the employment growth in 2012-2013. 

The  authorities  used  the  Commission's  QUEST  III  model  to  estimate  the  impact  of 
several structural measures. Some of the assumptions they used (e.g. a 50% reduction in 
administrative  burden)  appear 
the 
to  have  skewed 
macroeconomic  projections  presented  in  the  NRP  and  the  convergence  programme  do 
not  directly  build  on  the  output  of  their  modelling  exercise.  The  Hungarian  authorities 

the  results.  In  any  case, 

1  

For  a  more  detailed  analysis  on  the  external  balances  and  inflation  trends,  please  see  the 
Hungarian  chapter  of  the  Commission's  Convergence  Report  released  as  part  of  the  European 
Semester package. 

5 

 
 
 
                                                 
share  the  Commission's  view  that  the  economy  will  be  driven  by  net  exports  over  the 
forecast  horizon,  but  the  government  is  more  optimistic  regarding  domestic  demand, 
particularly in 2013. In 2012, the projected fall in government consumption expenditure 
appears  on  the  low  side  in  volume  terms  given  the  consolidation  measures.  In  nominal 
terms  the  difference  in  the  GDP  forecasts  is  smaller  since  the  authorities'  inflation 
forecast  is  surprisingly  low  given  the  new  measures.  Concerning  2013,  the  forecast  of 
private  consumption  expenditure  growth  is  on  the  high  side,  driven  by  more  sanguine 
assumptions  regarding  employment  growth  in  the  private  sector.  Gross  fixed  capital 
formation is also more positive in the authorities' 2013 forecast, since they assume that 
several  of  the  measures  such  as  the  financial  transactions  tax  would  impact  technology 
rather than shorter term capital investment.  

Procedural and governance issues 

Hungary submitted both the NRP and the convergence programme on 23 April 2012. The 
documents  are  fairly  substantial,  broadly  consistent  and  follow  the  agreed  guidelines. 
The two documents outline in an integrated manner the fiscal consolidation efforts and 
key  structural  reforms  as  well  as  reforms  underpinning  macro-economic convergence. 
The NRP in particular includes a large number of measures that either have not yet been 
implemented or still are in a conceptual phase and are not presented in greater detail. It 
also  outlines  progress  towards national  targets  for  the  year  2020,  putting  imminent 
reform  priorities  in  a  broader  context. Local authorities, Social  Partners  as  well  as  civil 
society were consulted on a number of programmes and important measures included in 
the NRP, but there was no consultation on the overall reform strategy. The legal status of 
the 2012 NRP is also difficult to interpret, since in contrast with 2011, the government 
did not pass a regulation in order to adopt it. 

2.2. Challenges  

Concerns persist over Hungary's long-term potential growth. Reforms over the past few 
years appear to have born fruit so far in expanding the labour supply, which is a much 
needed  step  and  it  will  be  important  to  continue  advancing  on  this  front.  Eventually, 
labour  reforms  will  also  need  to  be  translated  into  gains  in  employment  and 
competitiveness,  where  considerable  structural  challenges  persist.  In  addition,  potential 
growth  is  likely  to  have  suffered  from  the  fact  that  gross  fixed  capital  formation  has 
continued declining, and the investment ratio is the lowest since 1997.  

Specific labour market challenges include supporting demand for low-skilled labour on 
the open market, given that the employment rate of this group is 25.9% as against the EU 
average  of  45.1%.  In  addition,  raising  the  employment  rate  among  the  Roma  is  a 
particularly important objective, especially in certain regions: although official statistics 
do not exist, some2 estimated their employment rate in the North Hungary region at 17% 
as  against  57%  in  the  Central  Hungary  region  in  2010.  The  submitted  Social  Inclusion 
(Roma)  Strategy  and  other  mainstream  policies  are  not  aligned  properly  which 
undermines  the  success  of  the  strategy.  In  parallel  with  the  doubling  of  the  funds 
allocated  to  public  works,  expenditure  on  other  active  labour  market  policies  is  being 
scaled down. The recent changes to labour taxation have increased the marginal tax rate 
for low earners, while the complex system currently in place to ameliorate the impact of 
the  increased  tax  burden  on  this  income  group  might  have  ambiguous  effects  on  their 
employment  rate.  The  youth  employment  rate  (around  18%  against  the  EU  average  of 
34%) and the labour force participation of women with young children (around 49% in 

2  

Marketingcentrum (2010) Roma társadalom 

6 

 
 
 
                                                 
2011 vs. the EU average of 65.5%) are also very low, and while some limited advances 
have  been  made  in  increasing  childcare  facility  capacities,  these  are  outstripped  by 
demand.  

While there are some promising developments in vocational training, where the business 
sector  has  been  involved  in  the  redesign  of  courses,  life-long  learning  continues  to  be 
lagging. Investment in human resources in the natural sciences, mathematics, engineering 
and related fields also remains particularly important for improving growth potential. The 
current proportion of the labour force with such skills is below the EU average. Special 
attention to the profile of science and mathematics in general education would be helpful 
to prepare pupils for tertiary studies in these areas, and improving the output of primary 
education would seem necessary at least to counterbalance the reduced attention to basic 
skills  in  vocational  education.  There  are  also  concerns  that  the  changes  afoot  to  the 
education  system  may  deepen  socio-economic  inequalities  further.  Neither  the  current 
and  planned  cuts  to  education  nor  the  underprivileging  of  R&D  (where  expenditure  in 
Hungary remains significantly below the EU average) fits with the AGS recommendation 
of smart consolidation. 

The  low  level  of  economic  confidence  is  reflected  in  a  range  of  indicators,  from  the 
World Bank 2012 Doing Business indicator where Hungary was ranked 122nd globally 
in the category of investor protection, to the latest Global Competitiveness indices cited 
in section 3 of this paper. Shortcomings in the stability, predictability and transparency of 
the institutional and policy framework clearly remain obstacles to be surmounted in order 
to improve investment in Hungary (see also Box 1). 

In the financial sector, credit supply constraints remain significant, and biting in the case 
of enterprises. Many of the parent companies of foreign-owned banks are under pressure 
to  deleverage  given  the  broader  economic  and  regulatory  context,  but  policy 
developments have aggravated the situation. In addition to the financial sector levy, the 
early  repayment  of  foreign  currency  denominated  mortgages  at  discounted  rates  has 
contributed  to  heavy  losses  in  the  banking  sector  and  increased  policy  uncertainty, 
although  an  agreement  with  the  Banking  Association  in  December  has  somewhat 
ameliorated  the  situation.  However,  the  planned  introduction  of  the  new  financial 
transaction  duty  will  put  a  further  burden  on  the  banking  sector.  The  AGS  priority  of 
restoring normal lending to the economy therefore remains a challenge. 

Finally, Hungary's structural reform programme is expected to translate to sizeable fiscal 
consolidation from 2012. Some elements of this package are supportive of growth, and 
others have the potential to be so; for instance, the reform of the transport sector has the 
potential  to  achieve  sizeable  fiscal  gains  while  also  improving  its  efficiency  and 
performance.  Although  not  fully  reflected  in  the  NRP,  current  reform  plans  in  the 
healthcare  sector  also  have  the  potential  to  improve  fiscal  sustainability.  Overall, 
however,  the  policy  mix  is  regressive  and  is  not  in  line  with  the  AGS  priority  of 
differentiated  growth-friendly  fiscal  consolidation.  On  the  whole,  progress  towards 
reducing the high public debt ratio is very much needed. The result of high fiscal deficits, 
especially  in  the  2002-2006  period,  the  structure  and  financing  of  public  debt  is  also  a 
source of vulnerability given that close to half of it is denominated in foreign currency 
(and close to 70% is owned by foreign residents).  

7 

 
 
Box  1:  Summary  of  the  results  of  the  in-depth  review  under  the  macroeconomic 
imbalances procedure 

Hungary's  economy  built  up  sizeable  external  and  internal  imbalances  in  the  years 
leading up to 2009 and it now faces a continued adjustment challenge. The high public 
debt stock and high negative Net International Investment Position (NIIP) (81.3% and -112.5 
of  GDP  in  2010,  respectively)  are  primarily  the  result  of  the  continuous  twin  deficits  
recorded in the years before the global economic and financial crisis (fiscal adjustment was 
initiated  in  mid-2006,  but  from  a  very  high  deficit  level).  Over  this  period,  Hungary's  cost 
competitiveness had been deteriorating in particular vis-à-vis regional peers.  

With the deep crisis, a sharp adjustment has taken place with the country's net external 
balances,  but  important  vulnerabilities  remain.  Starting  from  late  2008,  the  current 
account  rebounded  into  a  surplus  as  domestic  demand  collapsed  and  corrective  steps  were 
taken  also  in  the  context  of  a  EUR  20  bn  EU-IMF  financial  assistance  programme.  It  was 
also  supported  by  the  significant  improvement  in  cost  competitiveness  through  mainly  the 
depreciation of the forint and a decline in real wages. The Commission services' Spring 2012 
forecast points to further steep reduction in the NIIP to well below 90% of GDP by the end 
of  2013.  Public  debt  sustainability  calculations  prepared  by  the  Commission  services  show 
that a firm decreasing path for public debt is attainable in the coming decade, but continued 
tension  in  the  financial  markets  could  relatively  easily  reverse  this  trend.  The  resolute 
decrease  in public  indebtedness  is  all  the  more  important  as  rolling  over such  a  high gross 
debt stock always implies increased vulnerabilities. The associated risks have prompted the 
national authorities to seek a precautionary financial assistance from the EU and the IMF, on 
which negotiations are yet to start.  

At the same time, Hungary's medium-term growth outlook is modest at best, partly as a 
consequence  of  policy  uncertainty.  The  potential  growth  is  currently  estimated  to  be 
considerably  lower  than  what  is  expected  for  neighbouring  countries:  in  the  range  of  0.2-
0.4%  for  the  2011-2013  period.  The  persisting  concerns  over  the  country's  long-term 
potential growth are to a large extent due to labour market weaknesses and a historically low 
level of investments. These bottlenecks to growth are also linked to the significant decrease 
in FDI inflows starting from 2009, also linked to a fall in reinvested profits. The low level of 
economic  confidence  is  explained  first  by  the  crisis  but  more  recently  by  significant  (and 
often controversial) changes in the policy environment.  

The  high  stock  of  private  debt  (at  155%  of  GDP)  stands  out  among  catching-up 
economies.  Despite  the  recent  rapid  deleveraging,  its  currency  composition  (according  to 
financial  accounts  data  over  60%  is  denominated  in  foreign  currency)  is  still  a  source  of 
concern,  which  in  turn  contributes  to  the  important  strains  on  Hungary's  strongly 
interconnected banking sector. The recently experienced high CDS sovereign spreads has a 
host of negative implications for economic prospects and contributed to the increasingly high 
financing costs of the real sector.  

In  this  context,  the  policy  response  could  usefully  include  creating  the  conditions  for 
sustained  macroeconomic  growth  as  well  as  a  gradual  but  sustained  deleveraging  of 
both  private  and  public  agents.  This  should  also  make  the  country  less  vulnerable  to 
changes  in  market  sentiment  and  restore  its  attractiveness  for  foreign  direct  investment. 
Policy initiatives could therefore target the creation of a predictable policy environment and 
well-functioning institutional system, which should be conducive to the sustained reduction 
in stock vulnerabilities. In addition, structural reforms in both labour and product markets are 
worth pursuing in order to lift the country's potential growth.  

8 

 
3. 

ASSESSMENT OF POLICY AGENDA  

3.1. Fiscal policy and taxation  

Budgetary developments and debt dynamics 

The  2012  convergence  programme  confirms  the  deficit  path  laid  down  in  the  2011 
update of the convergence programme, i.e. deficit targets of 2.5% of GDP in 2012 and 
2.2%  of  GDP  in  2013.  The  deficit  is  planned  to  decrease  further  to  1.5%  of  GDP  by 
2015. In parallel, the (recalculated) structural balance3 will improve from 4.0% of GDP 
in 2011 to 1.9% of GDP in 2012 and 1.2% of GDP in 2013 and slightly further in 2014 
and  2015.  This  means  that  the  medium-term-objective  (MTO)  of  a  deficit  of  1.5%  of 
GDP, which is unchanged compared to the target defined in 2011 and adequately reflects 
the  requirements  of  the  Stability  and  Growth  Pact,  would  be  achieved  in  2013,  i.e.  the 
2012 convergence programme aims to achieve the MTO two years earlier than planned in 
the 2011 convergence programme.4 This deficit path would also bring the deficit below 
the threshold of 3% of GDP by 2012 and beyond. 

In 2011, the headline general government balance reached a surplus of 4.3% as against a 
surplus  of  2%  of  GDP  targeted  in  the  2011  convergence  programme.  According  to  the 
Commission services calculation, the 2011 convergence programme at the time included 
a headline 2011 deficit net of one-offs of close to 6% of GDP, while  based on the 2011 
budgetary outcomes, the headline deficit net of one-offs was around 5¼% of GDP5, i.e. 
better than expected by close to ¾% of GDP. This better outcome is mainly explained by 
the small surplus of the local government sector compared to an expected deficit (0.5% 
of GDP) and some savings measures in the course of the second half of the year (around 
0.2% of GDP), such as the increase in excise duties and expenditure cuts in the budgetary 
chapters. Regarding the one-offs, on the revenue side the value of the transferred pension 
assets  was  higher  by  0.7%  of  GDP  than  the  9%  of  GDP  expected  in  the  2011 
convergence programme. The headline deficit also improved by close to 1% of GDP due 
to changes regarding one-off expenditures since the debt assumption and PPP buy-backs 
(together  close  to  2%  of  GDP)  eventually  did  not  take  place6  and  this  was  only  partly 
counterbalanced by additional one-off expenditures.7 

Regarding 2012, the attainment of the official deficit target of 2.5% of GDP is supported 
by  further  savings  measures  (of  around  1¾%  of  GDP,  according  to  the  Commission 
services calculation)  compared to the 2011 convergence programme, which are intended 

3  

4  

5  

6  

7  

Cyclically  adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the 
Commission  services  on  the  basis  of  the  information  provided  in  the  programme,  using  the 
commonly agreed methodology. 
It  may be worth recalling that, according to the (recalculated) structural balance incorporated in 
the  2011  convergence  programme,  the  MTO  would  have  not  been  achieved  in  the  programme 
period.  
The 2012 convergence programme includes a calculation suggesting that the 2011 general 

government deficit excluding one-off items within the year was only 2.43% of GDP. This figure, 
however, does incorporate an important part of the one-off revenues (i.e. the budgeted part of the 
revenues stemming from the transfer of the private pension assets and the entire amount of the 
temporary sectoral levies).  

The  government  finally  took  over  only  HUF  50  bn  (close  to  0.2%  of  GDP)  of  the  railway 
company’s  debt  (MAV),  which  cannot  be  accounted  for  as  one-off  expenditure  mainly  since  it 
was needed to cover the annual financing gap  of the MAV. 
These additional one-off expenditures include VAT related compensation payments in the light of 
the EU Court of Justice’s decision of July 2011, the public expenditure pertaining to the early FX 
repayment scheme and a part of the capital injection in the Hungarian Development Bank. 

9 

 
 
 
                                                 
 
to counterbalance some expenditure slippages and revenue shortfalls, partly related to the 
worse  than  expected  economic  growth  developments.8  These  further  savings  reflect 
exclusively revenue increasing measures, such as the hike of the standard VAT rate from 
25% to 27% as well as some recently announced tax increases (e.g. a permanent levy on 
telecommunication services. The expenditure cuts (e.g. reduction of expenditures in the 
budgetary  chapters,  partly  announced  in  the  2012  convergence  programme)  were  fully 
counterbalanced  by  expenditure  increasing  decisions  (e.g.  outlays  related  to  the  mid-
December 2011 agreement with the banking sector as well as the extension of the public 
work programme). 

According to the Commission  services' 2012 Spring Forecast, the  2012 deficit target is 
foreseen to be reached. However, this forecast includes net one-offs amounting to around 
0.9% of GDP (mainly related to the temporary sectoral levies). Without these temporary 
factors  the  budget  deficit  would  be  close  to  3½%  of  GDP.  This  forecast  assumes  the 
elimination of the (full amount of) extraordinary reserve of close to 1½% of GDP, which 
was created to compensate for unforeseen developments in order to ensure that the deficit 
target  can  still  be  met.9    In  contrast,  the  convergence  programme  still  assumes  the 
availability  of  an  extraordinary  reserve  of  0.4%  of  GDP  in  2012.  This  difference  is  on 
account  of  the  expenditure  slippages  of  close  to  ½%  of  GDP  expected  by  the 
Commission  services  related  notably  for  pharmaceutical  subsidies  and  the  transport 
sector. 

In  2013,  according  to  the  2012  convergence  programme,  without  taking  additional 
measures and also in view of the phasing out of the extraordinary sectoral levies of close 
to 1% of GDP, the budget deficit would be expected to reach 3.6% of GDP, i.e. be higher 
than the deficit target by close to 1½% of GDP.10  This is in line with the deficit forecast 
underpinning the Council recommendation to Hungary of March 2012 in the context of 
the  excessive  deficit  procedure.  Against  this  background,  the  2012  convergence 
programme  lists  additional  revenue-increasing11  and  expenditure  savings  measures  of 
around 1.7% of GDP (for details see Box 2 below).  

Also  taking  into  account  the  implementation  risks  partly  due  to  the  lack  of  sufficient 
specification mainly on the expenditure side, around two thirds of this deficit improving 
effect  of  1.7%  of  GDP  (i.e.  1.1%  of  GDP)  could  be  incorporated  in  the  Commission 
services' 2012 Spring Forecast. Whereas the 2012 convergence programme forecasts that 
the  deficit  target  of  2.2%  of  GDP  will  be  achieved  while  preserving  an  extraordinary 
reserve  of  at  least  0.2%  of  GDP12,  the  Commission  services'  2012  Spring  Forecast 
projected  a  deficit  of  2.9%  of  GDP  without  any  extraordinary  reserve  left.  This  higher 

8  

9  

10  

11  

12  

Regarding  2012,  the  2011  convergence  programme  contained  saving  measures  of  slightly  more 
than 1½% of GDP, mainly related to the Szell Kalman structural reform programme (such as the 
reduction of unemployment benefit and pharmaceutical subsidies).  
An  extraordinary  reserve  of  1.1%  of  GDP  was  incorporated  in  the  2012  budget,  which  was 
complemented  by  close  to  0.4%  of  GDP  thanks  to  saving  measures  announced  in  the  2012 
convergence programme.  
This no-policy-change scenario already incorporates of the deficit-improving effect of the further 
implementation of the Szell Kalman structural reform programme of around ½% of GDP, which, 
however,  is  partly  offset  by  increasing  expenditures  (e.g.  further  extension  of  the  public  work 
programme) and revenue reducing decisions (e.g. narrowing of the tax base for  personal income 
tax).  
As regards the financial transaction duty, the 2012 convergence programme envisages a revenue 
of 0.4 – 0.75% of GDP. 
The reserve is expected to be between 0.2 and 0.5% of GDP depending on revenue raised from the 
financial transaction duty. 

10 

 
                                                 
deficit  forecast,  beyond  the  implementation  risks  related  to  the  saving  measures,  also 
reflects a worse macroeconomic outlook. 

It  may  be  useful  to  note  that  the  consolidation  steps  raise  some  questions  in  terms  of 
quality,  as  they  are  mainly  concentrated  on  the  revenue  side  and  may  hinder  economic 
growth  also  in  the  light  of  the  deteriorating  business  environment  due  to  the  de  facto 
replacement  of  temporary  sectoral  levies  that  were  supposed  to  be  phased  out  by 
permanent sectoral taxes largely in the same sectors. 

Following  the  cut-off  date  of  the  2012  Spring  Forecast  new  information  became 
available.  The  government  provided  further  details  on  the  cuts  to  appropriations  of  the 
budgetary  chapters13  as  well  as  the  decision  to  nominally  freeze  the  expenditure  of  the 
central budgetary sub-system for the purchase of goods and services in 2013 was made 
public (with a combined budget improving impact of 0.2% of GDP). Finally, on 11 May 
the  government  also  submitted  to  Parliament  a  tax  package  containing  a  number  of 
elements that differed from the description in the 2012 convergence programme. Some of 
the parametric changes (e.g. lower-than-planned tax hike for the surcharge on energy and 
public utility companies) entail a combined revenue loss of close to 0.1% of GDP, which 
is  estimated  to  be  compensated  by  correspondingly  higher  receipts  from  the  financial 
transaction  duty.  Taking  into  account  all  of  this  new  information,  the  2013  deficit  is 
projected to fall to 2.7% of GDP. 

13  

New  information  clarified  the  extent  to  which  the  budgets  of  the  various  ministries  and  the 
appropriations are affected and indicated that the intended savings are based on the cancellation of 
selected tasks and efficiency improvements, which can ensure their sustainability. 

11 

 
                                                 
  Box 2. Main budgetary measures 

  Revenue 

2011 

Expenditure 

Introduction of the flat PIT system (-1.8% of GDP) 

Cut in appropriations for budgetary chapters (-0.8% 

Full-year effect of CIT cut (-0.25% of GDP) 

De  facto  elimination  of  the  earlier  mandatory 
private pension pillar (one-off: +9.7% of GDP, 
permanent: +1.3% of GDP)  

of GDP) 

Debt assumption of MAV (+0.2% of GDP) 

Capital injection in the MFB (+0.1 % of GDP) 

Reimbursement  of  VAT  based  on  EU  Court 

decision (+0.7% of GDP) 

Outlay  related  to  the  agreement  with  the  banks 

(+0.2% of GDP) 

2012 

  Maintenance  of  the  financial  sector  levy  at  its 

Nominal  wage  freeze  in  the  public  sector  together 

original rate (+0.3% of GDP) 

with wage compensation (-0.1% of GDP) 

 Hike  in  the  VAT  standard  rate  from  25%  to  27% 

Reduction of unemployment benefit and sick pay (-

(+0.5% of GDP) 

0.4% of GDP) 

Increase  in  the  SSC  paid  by  employers  (+0.4%  of 

Review of the pension system (-0.2% of GDP) 

GDP) 

Introduction of a tax on telecom services (0.1% of 

GDP) 

Other tax increases (0.8% of GDP) 

Net effect of the reform of PIT (+0.3% of GDP) 

Restructuring of public transport (-0.1% of GDP) 

Reduction in the drug subsidy (-0.3% of GDP) 

Improved efficiency of the public sector (-0.2% of 

GDP) 

Cut in the appropriations for the budgetary chapters 

(-0.8% of GDP) 

Outlay  related  to  the  agreement  with  the  banks 

(+0.4% of GDP) 

Wage compensation in the private sector (+0.4% of 

GDP) 

Extension  of  the  public  works  programme  (+0.2% 

of GDP) 

Increased subsidy for the national railway company 

(+0.2% of GDP) 

2013 

  Maintenance of the higher CIT rate  (0.3% of GDP) 

Outlay  related  to  the  agreement  with  the  banks 

Phasing  out  of  the  extraordinary  sectoral  levies  (-

(+0.2% of GDP) 

0.9% of GDP) 

Further  savings  in  the  pension  system  (-0.1%  of 

Narrowing of the tax base of PIT (-0.3% of GDP) 

Introduction of a financial transaction duty (at least 

GDP) 

Further cut in the drug subsidy (-0.3% of GDP) 

0.4% of GDP) 

Increased efficiency of the public sector (-0.3% of 

Higher  tax  rates  on  insurance  services  and  the 

GDP) 

energy sector (0.2% of GDP) 

Further  extension  of  the  public  work  programme 

Full yearly impact of the tax on the telecom sector 
and  the  reverse  charge  VAT  in  agriculture 
(0.1% of GDP) 

(+0.1% of GDP) 

Lower  wage  compensation  in  the  private  sector  (-

0.1% of GDP) 

Introduction  of  the  electronic  road  toll  (0.25%  of 

Increased  salaries  in  the  public  education  sector 

12 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
GDP) 

(0.1% of GDP) 

Cut in the support for the state-owned enterprises (-

0.1% of GDP) 

Lower  support  for  the  Research  &Development 

fund (-0.1% of GDP) 

Freezing  of  expenditure  on  the  purchase  of  goods 
and  services  in  the  public  sector  (-0.2%  of 
GDP) 

2014 

Full year effect of the electronic road toll (0.25% of 

Outlay  related  to  the  agreement  with  the  banks 

GDP) 

(+0.2% of GDP) 

Increased  salaries  in  the  public  education  sector 

(0.4% of GDP) 

Note: The budgetary impact in the table is the impact reported in the programme, i.e. by the national authorities. 
A  positive  sign  means  that  revenue/expenditure  increases/decreases  as  a  consequence  of  the  measure.  The 
degree of detail reflects the type of information made available in the convergence programme. 

The  (recalculated)  structural  balance  is  foreseen  to  improve  by  2.1%  of  GDP  in  2012, 
following a deterioration of 1.4% of GDP in 2010 and 0.3% of GDP in 2011. In 2013, 
the  (recalculated)  structural  balance  improves  by  0.7%  of  GDP,  which  would 
demonstrate  adequate  progress  towards  the  MTO.  Furthermore,  the  medium-term-
objective (MTO) of 1.5% of GDP, which is unchanged compared to the target defined in 
2011,  would  be  achieved  in  2013.  This  also  means  that,  according  the  (recalculated) 
structural balance, the MTO, in contrast with the 2011 convergence programme, would 
be  achieved  in  the  course  of  the  programme  period,  mainly  in  view  of  the  outlook  for 
lower  economic  growth  while  the  deficit  targets  are  kept.  However,  according  to  the 
Commission  services  assessment,  the  structural  balance  will  improve  only  by  0.3%  of 
GDP to 1.8% of GDP. This means that progress towards the MTO does not appear to be 
adequate in 2013 based on the assessment of the Commission, which takes into account 
the implementation risks associated with selected savings measures and a less optimistic 
macroeconomic scenario. 

The expenditure benchmark, according to the programme, will be met in 2013. However, 
real public expenditure growth will exceed the reference value in 2014 and in 2015 in the 
light  of  the  assumption  that  economic  growth  will  exceed  the  medium-term  potential 
growth estimated by the Commission services based on the agreed method. 

The  baseline  scenario  incorporated  in  the  2012  spring  forecast  is  subject  to  symmetric 
risks.  Risks  pointing  towards  a  higher  deficit  (e.g.  higher  subsidies  for  student  and 
housing  loans,  potential  reimbursement  of  losses  of  the  central  bank  as  well  as  risks 
related  to  the  accumulated  debts  of  public  enterprises  and  the  many  expenditure  cuts 
targeting the same budgetary chapters) may be off-set by deficit decreasing risks, such as 
more  favourable  than  currently  assumed  balances  of  local  governments  and  potentially 
increasing risk appetite, reducing interest expenditure.  

According to government plans, the public debt will be continuously reduced throughout 
the programme period to 77% of GDP in 2013 and below 73% of GDP in 2015, but will 
remain above the 60% of GDP reference value. Regarding the debt reduction benchmark, 
Hungary will be in transition period in 2013 and 2014, and plans would ensure sufficient 
progress  towards  compliance  with  the  debt  criterion.  Moreover,  according  to  the  plans, 

13 

 
 
 
 
 
 
the debt benchmark will be met at the end of the transition period, in 2015. At the same 
time,  according  to  the  Commission  services'  assessment  and  assuming  that  no  public 
assets will be sold in 2012, the debt ratio will decrease less dynamically, only to 78% of 
GDP by 2013. 

Long-term sustainability  

The projected long-term change in age-related expenditure is below the EU average. The 
initial  relatively  favourable  budgetary  position  offsets  the  increase  in  long-term  costs. 
Based  on  simulations  prepared  by  the  Commission  services,  under  a  no-policy-change 
assumption,  debt  would  fall  to  74.8%  of  GDP  by  2020.  Additional  fiscal  consolidation 
beyond  the  forecast  horizon  would  be  needed  to  make  progress  towards  the  reference 
value  for government debt beyond the  short term.  However, the full implementation of 
the programme would be enough to put debt on a steeper downward path by 2020, even 
if it would still  be above  the  60% of GDP  reference value in 2020. Ensuring sufficient 
primary  surpluses  over  the  medium-term  would  improve  the  sustainability  of  public 
finances. 

Fiscal framework 

After  some  initial  signs  of  success  with  the  previous  budgetary  framework,  it  was 
fundamentally revamped by the current government, which has weakened some aspects 
of  the  efficiency  of  its  operation  while  strengthening  others.  The  new  Basic  Law  that 
came into effect on 1 January 2012 prohibits the adoption of a budget that would lead to 
public  debt  exceeding  50%  of  GDP.  Until  the  debt  ratio  falls  below  this  level,  only 
budgets  inducing  a  reduction  in  the  debt  ratio  may  be  adopted.  The  competence  of  the 
Constitutional  Court  in  legislation  with  budgetary  implications  remains  restricted  until 
the debt ceiling has been met. Rules for convergence to the debt ceiling and operational 
rules  concerning  the  Fiscal  Council  were  specified  in  the  Economic  Stability  Law 
adopted in December 2011.14 Finally, the new Public Finance Act includes important (to 
a large extent re-confirmed) provisions for budgetary planning with both an annual and a 
medium-term planning horizon.  

Overall, the new Basic Law of Hungary and the legislative documents discussed above 
lay  out  a  fiscal  governance  framework  for  Hungary  that  has  a  number  of  merits. 
The  new  set-up  makes  it  virtually  impossible  to  adopt  a  non-compliant  budget  act  in 
economically good times; the semi-annual review offers the possibility of correcting ex-
post increases in public debt beyond the admissible level and a fiscal council occupies a 
key  position  in  the  process  of  budgetary  planning.  The  accumulation  of  debt  at  local 
government level is now subject to central control. With the respective provisions in the 
Public Finance Act, the rudiments of a medium-term budgetary planning framework have 
been established. 

Nevertheless,  a  number  of  flaws  remain  in  the  new  institutional  framework,  notably 
regarding the design features of the debt reduction rule. First, although the rule is anti-
cyclical, there is no immediate relation to the output gap, so it may or may not result in 
an  outcome  that  is  consistent  with  a  structural  budget  balance  constraint.  Second,  the 
legislation does not give guidance on  the  extent of admissible  deviations from the  debt 
constraint  in  the  event  of  a  significant  economic  recession  (escape  clause).  Third, 

14    The Economic Stability Law also stipulates that the income tax system is proportionate and the family 
tax  allowances  cannot  decrease.  These  unusual  provisions,  which  require  a2/3  majority  in 
Parliament to be amended, significantly limit the ability of the current or any future governments 
to change the tax system and adapt it to budgetary requirements. 

14 

 
                                                 
although  an  instant  interim  review  is  foreseen  if  debt  reduction  has  exceeded  the 
established limit and mandates budgetary correction, no deadline is established for such a 
review.  Finally,  the  debt  reduction  rule  might  not  ensure  compliance  with  Hungary's 
obligations  regarding  the  speed  of  debt  reduction  (also  due  to  the  difference  in  debt 
definitions) and adherence to the medium-term objective. 

Regarding  effective  budgetary  planning  the  government  is  explicitly  granted  the 
possibility to adjust the key figures in the outer three years of planning the central budget 
at any time without further specifics, and without any indication that these plans would 
provide  the  basis  for  the  preparation  of  the  annual  budget.  Therefore  the  multi-annual 
character of the fiscal rules is not yet guaranteed. With regard to the transparency of the 
budgetary process, the rights to access information are not specified, the timeliness of 
data  publication  is  not  stipulated  and  the  dimension  of  public  awareness  on  budgetary 
matters is not appropriately considered.  

As far as the FC is concerned, its analytical remit and material resources as stipulated 
in  the  ESL  are  not  commensurate  with  its  power  to  veto  the  annual  budget  law.  As 
suggested by international best practice, the quality and credibility of budgetary planning 
would  be  increased  by  entrusting  the  FC  with  the  preparation  of  the  macroeconomic 
forecast underlying the draft budget and medium-term planning as well as with ex-ante 
impact assessment of major fiscal policy initiatives (e.g. tax laws, also which are outside 
the  standard  budgetary  cycle).  Even  after  March  2012,  when  the  President  of  the  FC 
became  entitled  to  a  competitive  remuneration  and  a  small  secretariat  was  set  up,  the 
assignment of an appropriately sized and dedicated analytical staff is warranted.   

Against this background, the recommendations issued in July 2011 have been partly 
implemented. New regulations have been adopted for the operationalisation of the new 
constitutional  fiscal  governance  framework  but  some  weaknesses  in  its  design  can  be 
identified.  The  adopted  new  annual  numerical  rule  appears  to  focus  too  much  on  the 
annual  budgetary  cycle  and  does  not  seem  to  be  conducive  to  medium-term  budgetary 
planning, which remains indicative in the new framework. Regarding the analytical remit 
and  the  resources  of  the  Fiscal  Council,  they  are  not  commensurate  with  its  newly 
granted strong veto power. There is still a need to improve the availability of budgetary 
information,  also  given  that  raising  public  awareness  of  budgetary  policies  could 
contribute  to  the  success  of  fiscal  consolidation  built  on  fiscal  consensus  as  well  as  to 
meeting  the  transparency  requirements  laid  down  in  the  Directive  on  national  fiscal 
frameworks. 

Tax system 

The tax burden in Hungary temporarily fell by 1.5 pp. to 36% of GDP in 2011, but it is 
expected  to  increase  to  about  38.5%  of  GDP  in  2012.  This  is  close  to  the  2011  EU27 
average  of  39.2%  but  it  is  higher  than  in  comparable  countries  (e.g.  SK  (29.2%),  EE 
(33.3%), CZ (35%)). In terms of the taxes considered least distortive to growth, the share 
of consumption taxes was already rather high in 2011 and is expected to increase further, 
while revenue from recurrent property taxes remains below average.  

Corporate income tax revenues fell as a result of a 2010 cut in the corporate income tax 
rate  from  19%  to  10%  on  income  below  a  certain  threshold.  Personal  income  tax 
revenues also decreased due to the replacement of a progressive system with a 16% flat 
rate system introduced in 2011. Furthermore, in 2011 a new, generous and non-targeted 
family tax credit system was introduced with significant allowances especially for those 
with  three  or  more  children.  This  was  partly  financed  from  the  20%  reduction  in  the 
employment tax credit available to low to medium earners. 

15 

 
In  the  decade  to  2010,  Hungary  was  characterised  by  high  labour  taxation,  which 
specifically affected low wage earners (Hungary had the 4th highest tax wedge in the EU 
for  single  earners  at  67%  of  the  average  wage  in  2010).  Although  due  to  the  recent 
reform the implicit tax rate on labour fell from 39.4 % in 2010 to around 35% in 2011, 
the  tax  burden  on  labour  remains  high  in  Hungary.  In  2012  the  PIT  base  for  low  to 
medium  earners  was  narrowed,  while  at  the  same  time  the  employment  tax  credit  was 
fully  removed,  leading  to  a  further  overall  increase  in  the  tax  burden  on  low  earners. 
Thus the tax burden on a single average-wage worker, for example, increased by 2.4 pps. 
It  is  also  worth  noting  that  the  social  security  contributions  paid  by  employees  were 
increased by 1 pp. The increase in the tax wedge has reduced the incentives to participate 
in the formal labour market for a significant proportion of the labour force, in particular 
for  low-skilled  and  secondary  workers.  In  comparison,  the  favourable  labour  market 
impact  among  high-income  workers  is  expected  to  be  limited  due  to  their  already  high 
labour supply.  

In  the  private  sector,  a  wage  subsidy  scheme  providing  a  tax  allowance  for  employers 
who maintain net nominal wages has been introduced to counterbalance the unintended 
adverse labour market effects (see also section 3.3). For public workers the government 
provide an automatic offset. The budgetary effect of these counterbalancing measures is 
officially expected to be around 0.6% of GDP. Moreover, the introduction of the flat tax 
has increased the tax burden for those who have a higher propensity to consume and thus 
may also deteriorate the short-term growth and fiscal dynamics. The maintenance beyond 
2012  of  the  wider  PIT  base  for  those  on  higher  wages  could  generate  some  savings 
compared to the current plans, which may allow some compensation for lower earners in 
a budget neutral way. It is worth mentioning that this tax allowance system make the tax 
system even more complex, contrary to the original aim of the flat PIT. 

introduced 

in  2010  on 

temporary  extraordinary 

A  number  of  new  consumption-type  taxes,  such  as  a  tax  on  unhealthy  food  and  car 
insurance  have  recently  been  introduced,  and  several  tax  rates  and  duties  have  been 
increased. The standard VAT rate has been raised from 25% to 27% (the highest in the 
EU).  The 
the  retail, 
levies 
telecommunication and energy sectors are planned to be phased out, while the financial 
levy is to be halved in 2013. However, the introduction of a number of new permanent 
taxes was announced in the 2012 convergence programme, affecting practically the same 
sectors,  such  as  the  financial  transaction  levy  (0.45%  of  GDP),  the  tax  on  the 
telecommunication  services  (0.15%  of  GDP)  as  well  as  increased  surcharges  on 
insurance  services  and  the  energy  sector  (0.2%  of  GDP).  Since  the  recent  tax  reforms 
have  resulted  in  a  falling  share  of  income  taxes  while  consumption  taxes  have  further 
increased,  the  main  issues  at  present  are  not  the  scope  for  further  tax  shifts  to  enhance 
growth,  but  rather  the  unwanted  behavioural  impacts  of  the  recent  reforms,  which  may 
undermine growth prospects, including the detrimental impact on the investment climate 
of the extraordinary levies and their replacement by permanent levies from 2013. 

Revenue from recurrent property taxation in Hungary accounted for only 0.35% of GDP 
in 2009, while approaching the EU average (for the 19 Member States for which data are 
available)  could  provide  additional  revenue  of  about  0.5%  of  GDP.  Potential  measures 
along  these  lines  could  be  designed  to  mitigate  the  negative  impact  on  vulnerable 
households.  

The horizontal screening of tax challenges points to concerns with tax governance. The 
Hungarian tax system is characterised by significant tax evasion as indicated by the large 
shadow  economy  and  signs  of  undeclared  work.  The  size  of  the  shadow  economy  is 
estimated at nearly 24%, i.e. substantially above the EU average of 16%.  Underreporting 

16 

 
is common as many Hungarians declare an income at the minimum wage, although the 
prevalence  of  such  underreporting  is  likely  to  be  lower  than  sometimes  claimed 
(overstating the revenue impact but understating the employment impact of a minimum 
wage  hike)15.  The  self-employed  have  also  been  found  to  practice  underreporting.  The 
government  has  recently  taken  measures  that  go  in  the  right  direction,  i.e.  allowing 
unannounced audits and increasing penalties. 

3.2. Financial sector  

The  financial  indicators  for  the  Hungarian  banking  sector  remain  solid,  although  the 
aggregate  figures  mask  significant  divergences  among  banks.  No  Hungarian  financial 
institution was identified as needing recapitalisation in the context of the temporary bank 
recapitalisation  exercise  launched  by  the  European  Council  of  October  2011  and 
coordinated  by  the  European  Banking  Authority,  but  the  non-performing  loan  (NPL) 
ratio reached 13.5% and the share of corporate NPLs is among the highest in the EU. The 
banking  sector  has  been  weakened  by  the  lacklustre  economic  performance,  its 
exposure  to  foreign  currency  loans  and  unfavourable  policy  measures.  Several  large 
banks are owned by foreign parent companies that are themselves under pressure to meet 
regulatory  and  market  capital  requirements.  Credit  to  the  economy  has  been 
contracting,  in  contrast  with  most  regional  peers.  Credit  conditions  have  been 
particularly  tight  in  the  enterprise  sector,  with  the  decline  in  corporate  lending  having 
reached a four-year record in December 2011. Venture capital investments fell by more 
than 10% in 2011, the highest negative rate in the EU27.  

The  2011  Country-Specific  Recommendations  to  Hungary  called  for  assessing  the  effectiveness  of  current  SME 
support  policies  and  adjusting  public  programmes  to  improve  access  to  non-bank  funding.  In  line  with  this 
recommendation,  Hungary  reformed  its  JEREMIE  programme  in  order  to  increase  both 
absorption  and  the  leverage  effect.  In  this  context,  combined  microcredit  tenders  have 
been introduced from spring 2011, providing non-refundable grants combined with credit 
to  micro  enterprises.  New  calls  are  also  available  in  the  area  of  seed/venture  capital: 
investments financed from venture capital more than tripled in 2011. By the end of 2011 
more than EUR 200 million reached final beneficiaries under the JEREMIE programme 
(mainly  public  money),  and  implementation  has  been  accelerated  through  innovative 
instruments. Guarantees in particular have had a notable multiplying effect. 

Hungary  also  increased  the  allocation  of  resources  to  business  development  in  the 
framework  of  the  New  Széchenyi  Plan  (NSzP).  The  Széchenyi  Card  Programme, 
modified  in  2011,  provides  credit-card  based,  low-interest  loans  for  micro-,  small-  and 
medium enterprises at Hungarian credit institutions. Interest and guarantee fee subsidies 
are also offered. So far more than 150 000 cards have been issued with a credit line of 
about EUR 3.5 billion, and in 2011 the contracted amounts increased by more than 8% in 
nominal  terms.  There  remains  a  concern  that  young  innovative  enterprises  and  start-up 
companies  do  not  meet  the  criteria  required  in  the  calls  for  non-refundable  subsidies, 
although there are some legitimate considerations behind this. For example, NSzP calls 
require  applicants  to  have  been  in  business  for  at  least  two  years,  aiming  to  exclude 
companies  that  set  up  just  to  apply  for  funding and then declare bankruptcy. However, 
start-up  SMEs  can  also  benefit  from  the  new  combined  micro-credit  tenders  and  low-
interest loans.   

15 See e.g. Elek et al (2009) A bérekhez kapcsolódó adóeltitkolás Magyarországon 

17 

 
 
 
 
                                                 
The  implementation  of  the  2011  recommendation  on  SME  policies  has  therefore 
been  mixed.  The  measures  to  improve  access  to  non-bank  funding  have  been  relevant 
and relatively ambitious compared to the practice in the past. However, the effectiveness 
of current SME policies has not been reviewed, although the NRP refers to revising the 
SME support system at the end of 2010. Hungary has also not introduced any monitoring 
system for assessing the impact of SME policies. 

The  measures  described  above  in  themselves  support  the  AGS  priority  for  improving 
SME access to finance. However, the overall package of government policies has not 
been conducive to the ultimate aim of restoring normal lending to the economy. The 
financial sector levy approved by Hungarian lawmakers back in 2010, of which 0.45% of 
GDP falls on banks, is the largest in the EU (planned to be cut from 2013). Further, the 
government  unilaterally  opened  the  possibility  of  early  repayment  of  FX-denominated 
mortgages  at  discounted  rates  in  September  2011,  which  resulted  in  losses  for  the 
banking sector in the order of 1¼% of GDP, and principally benefited a relatively small 
group  of  rather  well-off  Hungarians  whose  mortgages  were  not  in  arrears.  The 
government  reached  an  agreement  with  the  Banking  Association  in  December  also  to 
reduce  the  losses  of  the  banking  sector  on  these  loans,  although  these  still  remained 
substantial (1/3 of these losses can be deducted from the bank levy, resulting in a net loss 
from this scheme of below 1% of GDP). Going forward, a stable policy environment will 
be crucial in order to support the resumption of lending activity. Broadening the range of 
eligible  issuers  of  domestic  mortgage-covered  bonds  could  also  contribute  to  a  more 
stable funding structure and may promote lower interest rates for borrowers. 

3.3. Labour market, education and social policy 

The participation rate in Hungary has been increasing over the past years due to policy 
measures  introduced  by  the  current  and  the  previous  government,  but  it  still  remains 
among the lowest in the EU (HU: 62.7%, EU 71.2% in 2011). Unemployment has been 
in  the  double  digits  (10.9%  in  2011)  and  is  projected  to  remain  so  over  the  forecast 
horizon. As outlined in section 2.2, the employment rate of the Roma, of the low-skilled 
and of the young is particularly low and social inclusion is lagging.  Women's share of 
the total volume of hours worked is the 6th highest in the EU, but their participation in the 
labour  market  is  still  hampered  by  the  fact  that  available  childcare  capacity  falls  well 
short of the actual and potential demand: in 2010, the capacity utilisation of crèches was 
110%, and coverage is particularly scant outside of large cities. Maternity leave, at up to 
3 years, is uniquely long. 

The geographical and occupational mobility of the labour force is poor. The contributing 
factors include a high proportion of house ownership, regional differences in rental prices 
and  the  lack  of  an  efficient  and  deep  residential  rental  market,  and  a  low  participation 
rate  in  life-long  learning.  In  addition,  according  to  the  Hungarian  Chamber  of 
Commerce, the proportion of vocationally trained workers who are either unemployed or 
working  in  fields  that  do  not  correspond  to  their  professional  qualifications  is  around 
60%, suggesting a mismatch between labour market requirements and the skills acquired 
in the educational system. State contributions and grants for school education have been 
cut,  although  already  in  2010  the  total  amount  was  only  80%  of  the  2006  figure. 
Hungary's global ranking on the training of education staff, at 111th place, is extremely 
low16.  

16 World Economic Forum (2011-12) Global Competitiveness Report 

18 

 
 
                                                 
As reflected in the NRP, the government has introduced numerous reforms in the labour 
market over the past year. These include tax changes, a drastic cut in the unemployment 
benefit to 90 days that came into effect in September 2011 and tightening other benefits, 
a new labour code (which is being scrutinised by the Commission and which especially 
initially  proved  to  be  an  unfavourable  example  of  downplaying  social  dialogue),  and 
piloting  vocational  training  under  the  new  system  devised  in  consultation  with  the 
Chamber  of  Commerce.  At  the  end  of  2011  new  laws  were  also  adopted  on  public, 
vocational and higher education. The pensionable age has been raised by three years and 
early  retirement  abolished  (without  adequate  labour  demand  and  complementary 
retirement savings, the future adequacy of the pension system and therefore the possible 
hidden  liabilities  for  the  public  budget  may  require  attention).  However,  progress 
towards  meeting  the  country-specific  recommendations  has  been  limited  and  the 
recommendations have only been implemented in part.  

With  respect  to  the  2011  recommendation  on  activation  policies,  the  participation  rate 
has indeed been rising (from 62% (2009 Q4) to above 63% (2011 Q4) in the 15-64 age 
group)  in  parallel  with  the  drastic  tightening  of  social  assistance  schemes  and  the 
unemployment benefit. At the same time, the measures to alleviate the impact of the tax 
reform on low earners have been far from ideal. The full elimination of the employment 
tax credit in 2012, combined with an increase in social security contributions, has further 
aggravated the situation of low earners: those without children who take home less than 
the  average  wage  can  ceteris  paribus  be  facing  an  over  10%  drop  in  their  wages 
compared to 2011.  

To ameliorate these developments, the government raised the minimum wage by around 
19% and introduced employer wage subsidy schemes. However, this convoluted system, 
whose elements are set out in the NRP, does not necessarily offer relief to low earners 
other than at the minimum wage, and it renders the marginal tax rate the highest at low 
incomes. The minimum wage raise is also likely to be unfavourable for labour demand 
and  it  may  increase  grey  employment,  inflationary  pressures  and  expectations  of  a 
weakening  exchange  rate.  (On  the  upside,  the  legislation  introduced  the  possibility  to 
differentiate  the  minimum  wage  by  region.)  The  wage  subsidy  schemes,  which  in  any 
case  may  be  temporary,  do  not  offset  all  of  the  resulting  burden  on  companies  and 
employees, even leaving aside the administrative costs and the additional costs that may 
be  involved  if  approximate  wage  ratios  between  different  wage  levels  are  maintained. 
Moreover, this scheme, as long as it is in effect, deteriorates the budgetary balance  

The  NRP  describes  steps  that  have  been  taken  to  encourage  women's  participation  in 
the labour market: e.g. the new labour code encourages flexible working arrangements, 
as well as easing the conditions of return of new parents to the labour market. Progress 
on expanding childcare has been meagre, mainly due to the lack of funding (it is relevant 
to know here that the child tax allowances and the child benefits are not means-tested). 
The  pressures  on  the  system,  especially  in  regions  characterised  by  more  favourable 
demographic  trends,  will  only  increase  since  the  mandatory  age  for  kindergarten 
participation  was  lowered  from  five  years  to  three  (taking  effect  in  2014).  Support  for 
alternative childcare services from EU sources (ESF) has been increased from HUF 6 bn 
to  HUF  8  bn,  but  the  overall  amounts  are  small,  while  the  sustainability  of  institutions 
established mainly from EU (ERDF) funding is challenging given that the responsibility 
for operational costs remains with local governments. 

The policy responses to the 2011 recommendation on activation policies therefore have 
only  been  partially  relevant  to  the  extent  that  the  instruments  chosen  to  address  the 
impact  of  the  tax  reform  on  low  earners  have  been  suboptimal,  while  the  measures  to 

19 

 
strengthen women's participation in the labour market are a very small step in the right 
direction  and  they  are  too  limited  to  have  a  significant  impact.  The  policy  instruments 
cannot be  considered ambitious since their scope is rather limited in comparison  to  the 
challenge. . 

Regarding  the  2011  recommendation  on  active  labour  market  policies,  the  Public 
Employment Service has been reorganised again as of January 2012, including a merger 
with  the  Office  for  Labour  Supervision  and  the  National  Institute  for  Vocational 
Education.  This  has  brought  with  it  a  downsizing  in  the  Public  Employment  Service, 
whose  capacity  has  already  been  under  pressure  given  high  unemployment  since  the 
crisis.  In  parallel,  a  National  Rehabilitation  Authority  is  being  set  up  to  become 
operational in July 2012, with  the staff to be drawn from the local Public Employment 
Service offices. Furthermore, half of the institution's overall capacity is now committed 
to managing the new public work scheme. Rather than strengthening the capacity of the 
Public  Employment  Service,  therefore,  developments  are  pointing  in  the  opposite 
direction.  

Active labour market policies are also undergoing large-scale restructuring, with cuts in 
training expenditure but doubling the funds allocated to public works compared to 2011. 
However, there is no comprehensive evidence-based evaluation of running active labour 
market policies that would back these changes. Insofar as training programmes may have 
been  relatively  ineffective,  it  would  have  been  preferable  to  improve  the  provision  of 
training  instead  of  cutting  down  on  it.  It  would  also  be  desirable  to  facilitate  mobility 
support  (as  also  encouraged  by  the  Commission's  Employment  Package).  The  public 
works scheme serves the double purpose of targeting social inclusion and activation, but 
the  latter  element  should  be  strengthened  in  order  to  increase  the  chances  of  finding 
employment in the open labour market. Conducting job search is difficult for participants 
when most employment in the public works scheme is full time (as of this year), without 
making  allowances  for  this  within  the  structure of  the public works scheme. There is  a 
risk that the drastic cut in unemployment benefit, together with the reduced capacities of 
the Public Employment Service, will result in channelling and locking people in to public 
works. 

A  new  European  Social  Fund  active  labour  market  programme  for  integrating 
disadvantaged  groups  has  been  launched,  with  some  modifications  relative  to  the 
previous  such  programme.  In  regions  with  a  high  proportion  of  low  skilled  inhabitants 
and  long-term  unemployed,  more  focus  will  be  given  to  training,  counselling  and  job 
search assistance. The indicators set for this four-year programme are evidence based and 
there  is  close  monitoring.  The  Social  Renewal  Operational  programme  is  also  being 
modified to increase the allocation to active labour market policies and life-long learning, 
general  foreign  language  and  IT  training  and  on-the-job  training  programmes.  A  new 
programme is being set up to help disadvantaged people develop life management skills. 

In sum, there has been no progress towards meeting the recommendation regarding the 
Public  Employment  Service.  Some  of  the  measures  aiming  to  provide  tailor-made 
services for disadvantaged groups are relevant (the European Social Fund programmes), 
others are ambitious insofar as the activation of some disadvantaged groups is concerned, 
but  unlikely  to  be  effective  in  improving  the  placement  of  participants  in  the  open  job 
market  (public  works).  In  the  absence  of  a  comprehensive  evaluation  of  active  labour 
market policies provision, there has not been much progress in linking funding to results.  

In terms of AGS priorities, Hungary has embarked on important advances in supporting 
employment,  including  of  young  people.  The  government’s  youth  policy  framework 

20 

 
programme  (New  Generation  Programme)  was  approved  at  the  end  of  2011,  with  an 
emphatic element on improving youth employment. Vocational education and training is 
being  revised  to  better  respond  to  skills  demand  in  the  labour  market,  and  rigidities  of 
contracts have been reduced. It should nevertheless be noted that the reduced attention to 
elementary,  general  skills  in  vocational  education  could  become  a  concern  without 
significant and coordinated efforts in parallel to improve the output of primary education 
given the current poor state of affairs and the fact that employers seek adaptability.17 The 
Dobbantó  pilot  project  helping  pupils  in  need  to  catch  up  appears  to  be  successful. 
Mainstreaming  its  features  into  the  Bridge  Programme  framework  would  be  promising 
from  an  educational  point  of  view,  but  this  cannot  happen  without  appropriate  funding 
and the NRP does not foresee additional resources for this purpose. 

Funding  for  tertiary  education  has  been  cut  given  the  need  for  fiscal  consolidation. 
Science and mathematics placements have been privileged within this context, but raising 
the  overall  tertiary  attainment  rate  should  remain  a  priority  since,  at  25.7%  
in  2010,  it  is  well  below  the  EU  average  and  the  NRP  target.  As  students  from  lower 
socio-economic backgrounds tend to be more averse to taking on financial risks, it would 
be  important  to  monitor  their  participation  in  the  student  loan  scheme.  In  addition, 
elements of the new legislation on school education risk increasing the number of early 
school  leavers  and  further  segregation  in  the  Hungarian  school  system,  while  the  low 
participation  rate  in  lifelong  learning  hampers  competitiveness  and  labour  market 
adaptation.  Progress  has  been  mixed  in  mobilising  labour  for  growth.  The  activity  rate 
has  been  increasing,  but  several  sectors  with  the  highest  employment  potential  (‘white 
jobs’ in the health and social sectors) are chronically underfunded and a forward looking 
health  workforce  strategy  would  also  be  important  to  retain  healthcare  professionals  to 
meet the growing demands of healthcare. There is also room to improve the promotion of 
entrepreneurial skills.  

Finally, Hungary recent policy record in protecting the vulnerable is in sharp contrast to 
the  AGS  recommendations.  The  effectiveness  of  social  protection  systems  decreased, 
while the share of the population at risk of poverty or exclusion increased from 28.2 in 
2008 to 29.9% in 2010, and the proportion of those affected by material deprivation from 
17.9  in  2008  to  21.6%  in  2010.18  In  the  absence  of  the  EU-IMF  balance  of  payments 
assistance, the crisis would likely have been much worse and these indicators could have 
risen yet further. In the context also of the fact that Hungary's child poverty rate is about 
1.5  times  the  EU  average,  the  higher  emphasis  on  early  childhood  development  in  the 
Social  Inclusion  Strategy  (submitted  on  6  December  2011)  is  welcomed  but,  together 
with  other  important  elements  in  the  text,  it  is  not  reflected  appropriately  in  the 
accompanying action plan and in mainstream policies19. As a bright spot, investments are 
in the pipeline from EU funds in developing social infrastructure and integrated action in 
favour  of  marginalised  communities  (e.g.  the  Roma).  However,  a  monitoring  system  is 
yet to be launched.  

17 See e.g. János Köllő (2011) Kudarcismétlő szakoktatás 
18  

19  

The 2012 FRA/UNDP/WB report ‘The Situation of Roma in 11 EU Member States’ states that the 
percentage of households at risk of poverty is much higher – more than double – for marginalised 
Roma households than for marginalised non-Roma households. 
Discrepancies  can  be  observed  in  the  fields  of  education,  employment  and  the  accessibility  of 
social services. In addition, the foreseen transfer of schools with a Roma majority to Roma self-
governments increases the risk of school segregation. 

21 

 
 
                                                 
3.4. Structural measures promoting growth and competitiveness  

Hungary's ranking in the Global Competitiveness Index has advanced from 58th position 
in  2009-10  to  48th  in  2011-12,  but  there  remains  considerable  scope  to  improve.  Cost 
competitiveness had been considerably declining before the crisis, but then improved on 
the  back  on  the  depreciation  of  the  forint  and  a  decline  in  real  wages.  Albeit  Hungary 
continuously  gained  market  share  before  2009,  its  performance  lagged  behind  regional 
peers. The relative resilience of the export sector to declining cost competitiveness may 
be  linked  to  the  very  significant  share  of  high-technology  goods  (at  over  22%  of  total 
exports, one of the highest in the EU-27).  

Research and innovation  

As the NRP also notes, R&D expenditure in Hungary (1.16% in 2010) is significantly 
below the EU average. Unhelpfully from the point of view of incentivising R&D in the 
private  sector,  the  direct  costs  of  research  and  development  can  no  longer  be  deducted 
from  the  innovation  tax  payable  by  enterprises.  Coordination  between  the  authorities 
responsible for different tasks does not appear effective, as reflected for instance in the 
significant  delay  in  the  preparation  of  the  new  R&D&I  strategy,  and  predictability  in 
funding  rules  has  not  yet  been  achieved.  On  the  positive  side,  several  schemes, 
discontinued  after  June  2010  and  co-financed  from  the  EU  Structural  Funds,  were 
reopened in 2011. According to the NRP, Hungary is preparing to position itself for fully 
maximising EU funds and programmes in the next funding period. 

Hungary  ranks  as  a  moderate  innovator  in  the  Innovation  Union  Scoreboard  with  a 
performance  below  EU  average,  with  business  R&D  investment  driven  primarily  by 
foreign-owned enterprises. In terms of indicators of SME innovation (introducing a new 
product  or  a  new  process),  Hungary  ranks  among  the  lowest  in  the  EU  together  with 
Latvia.  In  patent  statistics,  Hungary  is  ranked  16th  among  the  Member  States  with  1.3 
PCT  patent  applications  per  billion  GDP  (compared  to  the  EU  average  of  4),  and  the 
trend is slightly decreasing. Human resources for research are currently projected to be 
insufficient by 2015, although the number of students in maths, science and technology 
supported  from  public  sources  will  increase  significantly  according  to  the  new  tertiary 
education act. Researcher mobility has long been low both in terms of inter-sectoral and 
cross-border mobility. In 2010, foreign researchers employed in Hungary accounted for 
only 3% of the total number of researchers.  

Internal market, liberalisation and competition 

Several  postal  services  remain  significantly  shielded  from  competition,  particularly  in 
the letter mail segment, despite gradual market opening introduced by the Postal Services 
Directives  and  implemented  by  the  Postal  Act  in  Hungary.  Excessively  restrictive 
licensing  requirements  introduced  into  the  national  regulatory  framework  are  widely 
perceived  to  be  the  main  reason  behind  the  lack  of  actual  entry  into  the  letter  mail 
delivery  service,  and  limited  entry  into  related  market  segments  despite  interest  by 
various  market  actors.  Furthermore,  the  effect  of  the  recent  amendment  of  the  2003 
Postal  Act  will  be  a  de  facto  re-monopolisation  of  integrated  mail,  which  is  an  added 
value  service  that  is  currently  provided  freely  on  the  market.  This  is  a  significant  step 
backward  as  the  measure  carries  a  strong  negative  signal  value  for  further  potential 
entrants in other segments as well.  

Competition  is  lagging  in  the  professional  services.  Among  the  21  Member  States 
included  in  the  Organisation  for  Economic  Cooperation  and  Development  regulatory 
index  on  professional  services,  Hungary  is  the  fourth  worst  ranked.  Despite  the 

22 

 
 
judgments  of  the  CJEU  of  24.5.2011  (concerning  8  other  Member  States),  Hungary 
refused  to  repeal  the  nationality  requirement  for  the  profession  of  notary.  In  the  retail 
sector, Hungary now prohibits the establishment of new large scale retail stores and has 
imposed  excessive  licensing  requirements  for  issuing  hot  meal  vouchers  (de  facto 
restricting  the  market  to  nation-wide  banks),  while  a  state  monopoly  has  been  imposed 
on issuing cold meal vouchers.  

Infrastructure and public investment 

Structural and Cohesion Funds co-finance a substantial part of the investments included 
in  the  New  Széchenyi  Plan  (adopted  in  January  2011).  The  planned  aggregate  public 
investment to be co-financed in the 2007-2013 period amounts to EUR 29.7 billion. The 
implementation  and  delivery  system  of  the  Economic  Development  Operational 
Programme as well as the planning and monitoring system can be considered effective, 
although highly centralised within one single National Development Agency. Following 
a  successful  reorganisation,  implementation  appears  to  be  back  on  track.  In  2011  an 
ambitious  initiative  was  carried  out  to  streamline  the  delivery  system,  particularly  with 
regard to aid to enterprises: applications can now be submitted more easily and quickly, 
which  contributes  to  the  acceleration  of  implementation.  At  the  same  time  however, 
improvements  are  needed  in  the  public  procurement  system,  where  real  competition 
needs to be ensured. 

On 22 March 2012, the European Commission referred Hungary to the Court of Justice 
of the European Union over the extraordinary levy on the telecom sector. Increasing the 
financial  burden  of  telecoms  operators,  as  indicated  in  the  2012  Convergence 
Programme, is likely to impede investment in a sector expected to drive growth under the 
Digital  Agenda.  The  digital  switchover  is  currently  expected  only  at  the  end  of  2014 
instead of 2012, although making spectrum available for wireless broadband could help 
reduce the digital divide, introduce more choice in broadband, and enable innovation in 
other sectors. 

Regarding  transport,  the  liberalisation  of  the  rail  freight  sector  has  not  advanced  fast 
enough and the market share of the incumbent remains above 80%. Travel times with the 
Hungarian Railways have been gradually  increasing  because of  the growing number of 
speed  limits  due  to  the  state  of  the  tracks,  which  is  the  result  of  a  long  period  of 
underspending on maintenance. Almost ¾ of the railway company’s rolling stock is out 
of  date,  and  the  technical  assets  of  the  Budapest  Transport  Company  have  reached  the 
limits of their utility: 85.2% of them have been used beyond their planned lifetime.20 The 
NRP  contains  plans  to  renew  the  outdated  vehicle  park  and  establish  an  electronic 
ticketing system with the use of EU funds.  

There has been limited progress towards at increasing the efficiency of public transport 
and  reducing  its  dependence  of  public  funding,  although  the  convergence  programme 
rehearses  previous  goals  and  outlines  some  measures.  The  lack  of  progress  in 
restructuring public transport has been an important reason for budget slippages in recent 
years.21 According to the convergence programme, an electronic road toll system is now 
planned  to  be  introduced  by  July  2013.  A  recent  positive  development  has  been  the 
introduction  of  competitive  tendering  for  bus  services  in  Budapest.  As  regards  inland 

20   Report  of  the  State  Audit  Office  of  Hungary  on  the  Budapest  Transport  Company,  January  2012 
(http://www.asz.hu/jelentes/1202/jelentes-a-budapesti-kozlekedesi-zrt-gazdalkodasanak-
ellenorzeserol/1202j000.pdf) 
E.g. only about ¾ of railway passengers need to buy a ticket at all 
(http://www.mav.hu/res/MAV_CSR_jelentes_2009.pdf)  

21  

23 

 
                                                 
waterways,  over  30  bottlenecks  hamper  traffic  on  the  Danube,  with  an  impact  on  the 
whole  Danube  transport  corridor.  The  reallocation  of  funds  previously  earmarked  for 
improving  inland  waterways,  as  indicated  in  the  2012  NRP,  would  compromise  the 
navigability of the Danube. 

Energy and the environment 

Environmental protection was not mentioned in the NRP, but the potential of improving 
waste  management  could  be  explored  both  from  a  growth  enhancing  and  an 
environmental point of view. Full implementation of the existing legislation could create 
more  than  13  000  jobs  and  increase  the  annual  turnover  of  the  waste  sector  by  nearly 
€1.400 million.22 Hungary is on track to overachieve its CO2 emission reduction target 
by 36.2% compared to the base year. Nonetheless, Hungary is not exploiting the growth 
potential that moving towards a low-carbon economy  could unlock, as energy intensity 
remains  high  by  EU  standards  and  the  NRP  pays  relatively  little  attention  to  R&D. 
Following through on the ambitious energy sector plans reflected in the National Energy 
Strategy (October 2011) would help limit energy dependence for growth, particularly in 
industry and from transport. It would be beneficial develop a long-term roadmap and a 
consistent  monitoring  mechanism  in  order  to  make  sure  that  progress  is  achieved  as 
planned. 

The independence of the energy regulator is not ensured and it is not yet equipped with 
adequate  means  to  independently  set  network  tariffs  and  to  fulfil  its  tasks  and 
responsibilities  as  defined  in  the  Third  Energy  Package.  Subsidies  are  not  currently 
targeted  to  vulnerable  consumers,  which  translates  to  an  environmentally  harmful 
subsidy  to  energy  consumers.  Moreover,  the  current  cross-border  capacities  in  gas  and 
electricity  are  not  sufficient  to  ensure  the  integration  of  national  markets  on  a  regional 
level, which would boost competition and improve the resilience of the energy sector to 
external supply shocks. Hungary will require investment into its energy infrastructure but 
the  current  regulatory  environment  discourages  private  companies  from  making 
investments, which may in the future put additional pressure on public finances. 

3.5. Modernisation of public administration  

Institutional aspects rank high among the most problematic factors for doing business in 
Hungary,  and  are  the  single  worst  performing  indicator  in  the  Global  Competitiveness 
Index.  Corruption  is  the  fourth  most  important  concern  among  respondents  to  the 
Competitiveness Survey, and the burden of government regulation places Hungary 135th 
out of 142 countries surveyed.23 As indicated in the NRP, the most recent estimate for the 
overall administrative burden on firms is over 10% of GDP. Still, progress over the past 
decade has been remarkable in some specific areas: starting business costs dropped from 
over 100% of income per capita in 2002 to under 10% in 2011.  

As set out in the NRP, the Simple State Programme (launched in the second half of 2011) 
aims  at  reducing  the  administrative  burden  significantly,  targeting  savings  of  1.7%  of 
GDP in 2012 alone. Implementation is at risk of delay as responsibilities have not been 
clearly  defined  and  the  evaluation  of  the  first  set  of  measures  has  not  been  delivered 

22  

23  

Based on European Commission DG ENV (2011) Implementing EU Waste Legislation for Green 
Growth. 
World Economic Forum (2011-12) Global Competitiveness Report. 

24 

 
 
                                                 
yet.24 Some elements of e-government such as the single document management are now 
being applied in a limited way, and points of single contact have been set up, although 
the  Hungarian  e-portal  does  not  yet  allow  for  the  completion  of  all  administrative 
procedures.  In  the  context  of  the  Magyary  Programme,  the  total  number  of  public 
administrative  bodies  has  been  reduced  from  649  in  2010  to  318  mainly  through 
integration many responsibilities were transferred from the local government level to the 
state, and one-stop shops for citizens were created at the county level. It is important to 
guarantee  an  adequate  local  regional  partnership  in  the  implementation  of  development 
programmes, mainly regional operational programmes within the Cohesion Policy.  

As  far  as  tax  measures  are  concerned,  a  number  of  new  taxes  have  been  introduced 
whose administrative impact is likely to be high compared to the revenues generated (e.g. 
on unhealthy packaged food and on pornographic content). The complexity of tax rules 
on  the  whole  affects  firms  of  various  sizes  differently:  the  government  estimates  that 
larger firms devote on average 1% of their turnover to the administration of taxes, while 
the  same  figure  is  near  10%  for  small  enterprises.25  The  compensation  mechanism  to 
alleviate  the  increased  PIT  burden  on  low  earners  further  risks  offsetting  the  potential 
administrative  simplification  gain  associated  with  the  introduction  of  the  flat  PIT  rate. 
Importantly,  rapid  lawmaking  in  itself  also  exacerbates  the  administrative  burden.  An 
aspect  of  this  is  the  extensive  practice  of  individual  MPs  submitting  bills,  thereby 
circumventing the requirement of impact assessment. 

In  general,  apart  from  the  tax  area,  the  envisaged  measures  are  relevant  and  go  in  the 
right  direction,  but  implementation  is  lagging.  The  very  comprehensive  public 
consultation procedure prior to adopting the programme reflects good practice. Progress 
towards  meeting  the  2011  recommendation  on  business  administration,  therefore, 
has  been  partial,  and  the  size  of  the  challenge  together  with  the  high  ambition  of  the 
plans point towards a need for further close monitoring of the implementation in view of 
the envisaged impact.  

The 2012 Annual Growth Survey notes the importance of improving the transparency 
and quality of public administration and the judiciary. This is relevant for Hungary 
who ranks 64th on judicial independence on the Global Competitiveness Index, with the 
Commission  having  referred  Hungary  to  the  European  Court  of  Justice  regarding  the 
retirement  age  of  judges  on  25  April  2012  and  administrative  letters  sent  about  the 
independence  of  the  judiciary  in  January  and  March.  In  terms  of  other  performance 
indicators,  the  length  of  proceedings  and  case  backlog  do  not  appear  to  present  major 
problems  within  the  Hungarian  judicial  system.26  Regarding  public  administration, 
Hungary  ranks  81st  in  the  transparency  of  government  policymaking,  109th  in  the 
diversion of public funds, and 130th concerning public trust in politicians. The German-
Hungarian Chamber of Industry and Commerce also reported in April 2012 that 87% of 
its respondents are unsatisfied with the unpredictable economic environment (the worst 
result  compared  to  previous  years)  and  62%  rate  the  erosion  of  trust  in  legal  security 
stemming  from  non-transparent  legislation  as  the  key  factors  behind  declining  investor 

24  

25  

26  

According  to  the  Government  Decree  (1133/2011)  on  the  first  steps  of  administrative  burden 
reduction adopted in May 2011 a first evaluation should have been prepared six months after the 
adoption of the Decree. 
See  also  Reszkető  Petra  (2012)  Vállalkozni  kicsiben  és  nagyban  –Magyarország  (Budapest 
Institute). 
CEPEJ (European Commission for the Efficiency of Justice), 2010 Report,:  
http://www.coe.int/t/dghl/cooperation/cepej/evaluation/default_EN.asp?. 

25 

 
                                                 
sentiment. This is also a concern since increasing FDI could be an important channel for 
reducing the currently very high net international investment position.  

The  scope  to  improve  is  therefore  considerable,  and  recent  developments  have  been  in 
the  wrong  direction.  The  weakest  pillars  of  the  National  Integrity  System,  as  presented 
by  Transparency  International,27  remain  similar  to  the  situation  under  previous 
governments (e.g. political parties, the business sector). However, the two-thirds majority 
won  by  the  government  in  2010  has  significantly  relaxed  the  external  constraints  on 
appointments  and  the  reorganisation  of  institutions  and  rules.  This  has  facilitated,  for 
instance,  limiting  the  remit  of  the  Constitutional  Court,  and  rewriting  the  Basic  Law 
without genuinely broad consultation, which provoked strong criticism inter alia by the 
Venice Commission and the EU. Party financing has also been a long-standing concern: 
the  State  Audit  Office  only  examines  invoices  submitted  by  the  political  parties  rather 
than  assessing  real  expenditure.  The  lack  of  control  has  the  potential  to  seriously 
undermine anti-corruption efforts.  

Finally, there is room to reinforce internal compliance mechanisms as regards state aid. 
The number of prohibition decisions taken by the Commission in the 2004-2011 period 
was  the  8th  highest  in  Hungary  in  the  EU  (with  the  number  of  positive  decisions  taken 
into account for those Member States who would otherwise tie in the rankings). The size 
of  sectoral  (as  opposed  to  horizontal)  aid  as  a  percentage  of  GDP,  which  can  be  an 
unfavourable  indicator  of  the  quality  of  aid,  was  the  highest  in  Hungary  among  the 
Member  States  in  2010,  although  much  of  this  reflects  aid  volumes  granted  prior  to 
accession, and set to end according to country-specific treaty provisions. On the positive 
side,  Hungary  demonstrated  the  fourth  highest  level  of  compliance  with  the  State  Aid 
Best Practices code. 

27  

Transparency International (2012) Corruption Risks in Hungary 2011. 

26 

 
                                                 
4.  OVERVIEW TABLE  

2011 commitments 

Summary assessment 

Country-specific recommendations (CSRs) 

CSR  1:  Strengthen  the  fiscal  effort  in  order  to 
comply  with  the  Council  recommendation  to  correct 
the  excessive  deficit  in  a  sustainable  manner,  inter 
alia  by  avoiding  the  structural  deterioration  in  2011 
implicit  in  the  planned  2  %  of  GDP  budget  surplus 
and ensure that the budget deficit is kept safely below 
the  3%  of  GDP  threshold  in  2012  and  beyond, 
contributing  to  the  reduction  of  the  high  public  debt 
ratio. Fully implement the announced fiscal measures 
and adopt additional measures of a permanent nature 
if needed at the latest in the 2012 budget to secure the 
budgetary  target  for  that  year.  The  2012  budget 
should also identify the additional measures in order 
the  convergence 
target 
to  attain 
programme.  Ensure  progress  towards  the  medium-
term  objective  (MTO)  by  at  least  0.5  %  of  GDP 
annually  until  the  MTO  is  reached  and  use  possible 
fiscal 
windfall 
consolidation.   

the  2013 

accelerate 

revenues 

the 

in 

to 

in  2011the 

The  government  has  achieved  considerable 
progress  regarding  the  implementation  of  the 
consolidation  and  structural  reform  measures 
included in the 2011 convergence programme 
and further saving measures adopted as part of 
the 2012 budget. Moreover, a new package of 
consolidation  steps,  concentrating  mainly  on 
the  revenue  side,  was  announced  in  the  2012 
convergence programme  with  the  ambition  to 
attain  the  deficit  targets  in  2012  and  2013. 
Whereas  no  effort  was  made  to  avoid  the 
structural  deterioration 
fiscal 
adjustment is assessed to be sufficient to attain 
the  official  2012  deficit  target  thanks  to  a 
structural  improvement  of  over  2%  of  GDP. 
For 2013, the 2012 Spring Forecast projects a 
deficit of 2.9% of GDP, which could even be 
recent 
somewhat  better  based  on  most 
information.  At  the  same  time  this  deficit 
forecast  assumes 
that  all  extraordinary 
reserves  are  eliminated  i.e.  no  buffer  remains 
adverse 
to 
developments.  This  forecast  is  still  above  the 
official target of 2.2% of GDP as a number of 
announced  measures  are  not  yet  sufficiently 
substantiated,  e.g.  some  expenditure  cuts 
related to the budgetary chapters. 

unforeseen 

offset 

any 

CSR 2: Adopt and implement regulations specifying 
the  operational  aspects  of  the  new  constitutional 
fiscal  governance  framework,  including,  inter  alia, 
the  numerical  rules  that  will  be  implemented  at  the 
central  and  local  level  until  the  debt  ratio  has 
declined to below 50 % of GDP. Regarding the fiscal 
framework,  implement  and  strengthen  multiannual 
fiscal  planning,  improve  the  transparency  of  public 
finances and broaden the remit of the Fiscal Council. 

CSR  3:  Enhance  participation  in  the  labour  market 
by  alleviating  the  impact  of  the  tax  reform  on  low 
earners 
in  a  budget-neutral  manner.  Strengthen 
measures  to  encourage  women's  participation  in  the 
labour market by expanding childcare and pre-school 
facilities. 

New regulations have been adopted related to 
the  operationalisation  aspects  of  the  new 
constitutional  fiscal  governance  framework 
but  some  weaknesses  pertaining  to  its  design 
features  can  be  identified.  The  medium-term 
budgetary  planning  is  still  indicative  in  the 
new  framework.  The  analytical  remit  and  the 
necessary  resources  of  the  Fiscal  Council  are 
not commensurate to its newly granted strong 
veto  power.  Finally, 
the  availability  of 
budgetary information is still not sufficient. 

The policy responses have only been partially 
relevant  to  the  extent  that  the  instruments 
chosen to address the impact of the tax reform 
on  low  earners  have  been  suboptimal,  while 
strengthen  women's 
the  measures 
participation  in  the  labour  market  are  too 
limited, thus constitute a very small step in the 
right direction. The policy instruments cannot 
be  considered  ambitious  since  their  scope  is 
rather limited in comparison to the challenge.  

to 

CSR  4:  Take  steps  to  strengthen  the  capacity  of  the 
Public  Employment  Service  and  other  providers  to 
increase the quality and effectiveness of training, job 
services. 
search  assistance  and 

individualised 

There  has  been  no  progress  towards  meeting 
the  recommendation  regarding  the  Public 
Employment  Service.  Some  of  the  measures 
aiming  to  provide  tailor-made  services  for 

27 

 
 
 
 
Reinforce  active  labour  market  measures  delivering 
positive  evidence-based  results.  In  consultation  with 
stakeholders,  introduce  tailor-made  programmes,  for 
the  low-skilled  and  other  particularly  disadvantaged 
groups. 

reform  and 

the  measures  envisaged 

CSR  5:  Improve  the  business  environment  by 
for 
implementing  all 
regulatory 
lowering  administrative 
burdens in the national reform programme; assess the 
effectiveness  of  current  SME  support  policies  and 
adjust public programmes in order to improve access 
to non-bank funding. 

Europe 2020 (national targets and progress) 

Employment rate target (in %): 75% 

R&D target (in %): 1.8% 

28 

disadvantaged  groups  are  relevant  (the  ESF 
programmes),  others  are  ambitious  insofar  as 
the activation of some disadvantaged groups is 
concerned,  but  unlikely  to  be  effective  in 
improving the placement of participants in the 
open  job  market  (public  works).  In 
the 
absence  of  a  comprehensive  evaluation  of 
ALMP  provision,  there  has  not  been  much 
progress in linking funding to results. 

In  general,  apart  from  the  tax  area,  the 
envisaged measures are relevant and go in the 
right  direction.  The  very  comprehensive 
public  consultation  procedure  prior  adopting 
the  program  also  reflects  good  practice. 
Progress towards meeting this part of the fifth 
2011  CSR,  therefore,  has  been  encouraging 
although not uniformly so, but the size of the 
challenge  and  the  high  ambition  of  the  plans 
towards  a  need  for  further  close 
point 
monitoring  of  the  implementation  in  view  of 
the  envisaged  impact.  Efforts  to  improve 
access 
funding  have  been 
relevant,  but  they  lack  in  ambition  compared 
to  the  current  scope  of  the  problem,  in  the 
context  of  contracting  credit  to  the  corporate 
sector. 

to  non-bank 

Employment  rate  (%):  60.5%  (2009),  60.4% 
(2010), 60.7% (2011). 

The 2011 Convergence Programme calculated 
with  the  creation  of  400,000  new  jobs  for 
2011-2015. As can be seen from the latest data 
for 2011, there has only been a slight increase. 
The  effect  of  the  public  works  programme  is 
already reflected in the 2011 employment data 
and  will  be  responsible  for  most  of  the 
expected  employment  growth  in  2012-2013. 
However,  it  would  be  desirable  to  focus  on 
policies 
the 
facilitate 
employment rate by organic job creation in the 
market.  Reasonable  progress  has  been  made 
towards the achievement of this objective. 

reaching 

that 

figure).Hungary  has 

Gross domestic expenditure on R&D (in % of 
GDP):  1.17%%  (in  2009),  1.16%  (2010 
provisional 
recently 
changed  the  regulation  of  the  private  sector`s 
innovation  obligations  and  access  to  funds. 
The  compulsory  innovation  contribution  (a 
percentage  of 
that 
their  net 
enterprises  pay  to  the  so  called  Research, 
Technology  and 
Innovation  Fund)  was 
abolished and the tender system for using the 
funds  from  this  innovation  contribution  fund 
is  under  renewal.  Parallel  to  this,  the  state 
contribution  to  the  innovation  fund  will  be 
decreased by 0.1% of GDP in 2013 according 
to  the  new  NRP.  The  effectiveness  of  these 
schemes  is  currently  under  review.  Some 

revenues 

 
CO2 emission reduction target (development in %) of 
the Member State: -10% 

Renewable  energy  target:  14.65%  in  overall  final 
energy consumption 

Energy  efficiency:  Reduction  in  primary  energy 
consumption by 2020 (in Mtoe) 

2.96Mtoe 

Early school leaving target (in %): 10% 

Tertiary education target (in %): 30.3% 

progress  has  been  made  towards  achieving 
this objective, the results are inconclusive. 

Greenhouse  gas 
emissions,  base  year 
1990.Index  1990  =  100:  69  (in  2009)  After 
1990  a  strong  increase  appeared  in  the  CO2 
emission  that  was  due  to  increased  public 
transport  activity.  Since  2003,  CO2  emissions 
in  Hungary  follow  a  declining  path  although 
this decrease is slow. Some progress has been 
made towards achieving the objective 

Share  of  renewable  energy  in  gross  final 
energy  consumption:  7.3%  (2009).  Over  the 
last  decade,  the  share  of  renewable  energy  in 
all  energy  usage  doubled  in  Hungary  (it  was 
3.3  in  1999).  However,  it  still  does  not  reach 
the  average  of  the  Member  States.  Some 
progress  has  been  made  towards  achieving 
this objective, but there is a great deal of room 
left for progress. 

Gross  inland  consumption  of  energy  divided 
by  GDP  (kilogramme  of  oil  equivalent  per  1 
000  euros):  414.2  (2009),  419.5  (2010)The 
energy efficiency objectives are set according 
to  national  circumstances  and  national 
formulations.  As  the  methodology  to  express 
the 2020 energy consumption impact of these 
objectives in the same format was agreed only 
recently,  the  Commission  is  not  yet  able  to 
present this overview. 

Early  leavers  from  education  and  training 
(percentage of the population aged 18-24 with 
at most lower secondary education and not in 
further  education  or  training):  11.2%  in  2009 
and 10.5% in 2010. 

the  upper  age 

After the modest decrease from 2009 to 2010 
(2011 data is not available yet) the mandatory 
school  age  will  be  changed.  From  the  next 
academic  year, 
limit  for 
compulsory  schooling  will  be  decreased from 
18  years  to  16,  allowing  students  to  leave 
school  earlier.  This  is  not  aligned  with  the 
stage at which secondary school qualifications 
are  received  and  it  may  increase  the  rate  of 
early school leaving. 

attainment 

educational 
30-34 

(%  of 
Tertiary 
population 
successfully 
completed  tertiary  education):  25.1%  in  2009 
and 26% in 2010. 

having 

Hungary  has  made  considerable  progress  in 
this  area  since  2006:  each  year  on  average 
over  percentage  point  growth  was  achieved, 
but the Hungarian figure is still below the EU 
average.  In  the  academic  year  starting  in 
September  2012,  the  implementation  of  the 
new  higher  education  bill  will  start.  It  is 
already  noticeable  that  partly  because  of  the 

29 

 
Target  for  the  reduction  of  the  population  at  risk  of 
poverty or social exclusion: 450,000 

significant  cut  in  the  number  of  fully  state-
funded  places  the  number  of  registrations 
suffered  a  major  setback  by  30  000.  At  the 
same time, the full implementation is a longer 
process, so it is too early to evaluate.  

Progress  has  been  made  towards  achieving 
this  objective,  albeit  recent  changes  could 
slow down the improvement. 

The  number  of  Hungarian  citizens  at  risk  of 
poverty  or  social  exclusion  was  2,924,000  in 
2009 and 2,948,000 in 2010. 

Despite  the  common  endeavour  and  probably 
as  the  result  of  the  crisis,  poverty  has  not 
declined,  it  even  grew.  No  progress  has  been 
made towards achieving this objective.   

30 

 
 
5. 

ANNEX  

Table I. Macroeconomic indicators 

Core indicators
GDP growth rate
Output gap 1
HICP (annual % change)
Domestic demand (annual % change) 2
Unemployment rate (% of labour force) 3
Gross fixed capital formation (% of GDP)
Gross national saving (% of GDP)
General government (%  of GDP)
Net lending (+) or net borrowing (-)
Gross debt
Net financial assets 
Total revenue 
Total expenditure
  of which: Interest
Corporations (%  of GDP)
Net lending (+) or net borrowing (-)

1995-
1999

2000-
2004

2005-
2008

2009

2010

2011

2012

2013

2.4
-2.1
16.5
1.9
8.7
22.3
20.0

-6.5
68.5
-28.4
45.2
51.7
8.3

4.2
0.5
7.1
4.5
6.0
23.3
17.7

-6.0
56.6
-36.4
43.2
49.2
4.5

2.2
3.1
5.4
0.6
7.5
22.0
16.2

-6.5
66.9
-50.8
44.0
50.5
4.1

-6.8
-5.1
4.0
-10.5
10.0
20.7
17.8

-4.6
79.8
-59.6
46.9
51.5
4.7

1.3
-3.9
4.7
-0.5
11.2
18.0
19.4

-4.2
81.4
-61.0
45.2
49.4
4.1

1.7
-2.3
3.9
-0.5
10.9
16.7
20.0

4.3
80.6
n.a
52.9
48.6
4.1

-0.3
-2.7
5.5
-2.0
10.6
16.2
20.7

-2.5
78.5
n.a
46.1
48.6
4.1

1.0
-2.0
3.9
-0.3
9.6
15.8
21.7

-2.9
78.0
n.a
44.6
47.6
4.2

-4.1

-2.3

-1.6

4.3

6.1

n.a

n.a

n.a

n.a
n.a
n.a
n.a

n.a
n.a
n.a
n.a

n.a
n.a
n.a
n.a
n.a
n.a

-104.2
-0.9
16.8
16.8

-104.7
-2.3
15.4
20.1

-121.4
5.2
11.0
24.8

-128.4
2.7
9.6
21.9

-109.8
-4.9
14.8
22.5

5.9
58.7
33.5
5.7
16.9
10.8

1.1
62.3
35.5
4.2
17.5
6.4

1.3
66.4
37.0
3.6
20.1
6.0

1.0
66.9
35.9
2.9
19.3
4.7

1.5
62.0
36.7
3.4
19.3
6.0

Net financial assets, non-financial corporations
Net financial assets, financial corporations
Gross capital formation
Gross operating surplus
Households and NPISH (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Gross wages and salaries
Net property income
Current transfers received
Gross saving
Rest of the world (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Net exports of goods and services
Net primary income from the rest of the world
Net capital transactions 
Tradable sector
Non-tradable sector
  of which: Building and construction sector
Real effective exchange rate (index, 2000=100)
Terms of trade in goods and services (index, 2000=100)
Market performance of exports (index, 2000=100)
Notes:
1 The output gap constitutes the gap between actual and potential gross domestic product at 2000 market prices.
2 The indicator for domestic demand includes stocks.
3  Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within two 
weeks. The labour force is the total number of people employed and unemployed. The unemployment rate covers the age group 15-74.

2.8
111.3
6.5
-4.9
1.8
45.0
39.6
3.7
127.9
98.8
153.5

-6.7
103.7
-0.4
-6.0
0.8
45.7
40.1
4.4
140.6
98.8
134.7

1.0
120.2
4.9
-4.4
1.2
43.5
41.0
4.1
132.2
98.8
149.3

-7.4
81.9
-2.8
-5.0
0.2
45.8
40.0
4.7
120.1
101.1
108.3

-4.8
75.0
-0.3
-4.7
0.0
47.7
37.8
4.2
96.2
101.6
83.1

2.9
n.a
7.4
-6.2
2.0
47.6
37.2
3.3
130.9
97.4
157.8

5.4
n.a
9.0
-6.6
3.2
n.a
n.a
n.a
125.7
97.2
163.2

n.a
n.a
n.a
n.a
n.a
n.a

n.a
n.a
n.a
n.a

n.a
n.a
n.a
n.a
n.a
n.a

7.0
n.a
10.5
-6.6
3.3
n.a
n.a
n.a
128.2
97.7
168.3

Source :
Commission spring 2012 forecast

31 

 
 
 
 
Table II. Comparison of macroeconomic developments and forecasts 

Real GDP (% change)
Private consumption (% change)
Gross fixed capital formation (% change)
Exports of goods and services (% change)
Imports of goods and services (% change)
Contributions to real GDP growth:
- Final domestic demand
- Change in inventories
- Net exports
Output gap1
Employment (% change)
Unemployment rate (%)
Labour productivity (% change)
HICP inflation (%)
GDP deflator (% change)
Comp. of employees (per head, % change)
Net lending/borrowing vis-à-vis the rest of the 
world (% of GDP)

2011
COM CP
1.7
0.0
-5.4
8.4
6.3

1.7
0.0
-5.4
8.4
6.3

2012
COM CP
0.1
-0.3
-1.4
-1.5
-2.3
-2.3
4.7
5.4
2.8
4.0

2013
COM CP
1.6
0.3
0.3
8.8
8.0

1.0
0.0
-0.7
8.0
7.4

-1.1
0.5
2.2
-2.3
0.3
10.9
1.4
3.9
3.5
5.8
2.9

-1.1
0.5
2.2
-2.4
0.8
10.9
0.9
3.9
3.5
3.2
3.6

-1.8
0.0
1.6
-2.7
1.0
10.6
-1.3
5.5
4.6
3.7
5.4

-1.3
-0.6
2.0
-3.0
1.2
10.9
-1.1
5.2
4.2
2.4
6.5

-0.3
0.0
1.3
-2.0
1.4
9.6
-0.4
3.9
3.6
2.9
7.0

0.2
-0.1
1.5
-2.6
2.2
10.3
-0.6
4.2
2.9
3.5
7.3

2014
CP
2.5
2.5
3.5
10.5
10.9

1.9
-0.1
0.7
-1.7
3.0
9.5
-0.5
3.0
3.0
4.5
7.3

2015
CP
2.5
2.6
3.5
10.5
10.9

2.0
-0.1
0.7
-1.2
3.4
8.9
-0.8
3.0
2.7
3.3
6.4

Note:
1In percent of potential GDP, with potential GDP growth according to the programme as recalculated by the Commission.

Source :

Commission’ spring 2012 forecasts (COM); Convergence programme (CP).

32 

 
 
Table III. Composition of the budgetary adjustment 

(% of GDP)

2011

2012

2013

2014

2015

Change: 
2011-2015

Revenue
of which:
- Taxes on production and imports
- Current taxes on income, wealth, etc.
- Social contributions
- Other (residual)
Expenditure
of which:
- Primary expenditure

of which:

Compensation of employees
Intermediate consumption
Social payments
Subsidies
Gross fixed capital formation
Other (residual)
- Interest expenditure
General government balance (GGB)
Primary balance
One-off and other temporary measures
GGB excl. one-offs
Output gap2
Cyclically adjusted balance2
Structural balance3
Change in structural balance

3

Structural primary balance
Change in structural primary balance
Expenditure benchmark
Public expenditure growth4 (real)
Reference rate5,6
Lower reference rate5,7
Deviation in % of GDP 
from applicable reference rate
Two-year average deviation in % of GDP 
from applicable reference rate

COM
52.9

COM
46.1

16.6
6.4
13.0
16.9
48.6

17.4
6.9
13.0
8.7
48.6

CP
46.0

17.5
6.9
13.0
8.6
48.5

COM
44.6

17.1
6.7
13.0
7.9
47.6

CP
45.2

17.6
6.8
13.0
7.8
47.4

CP
45.3

17.4
6.9
13.0
8.0
47.2

CP
44.9

17.1
7.0
12.9
7.9
46.4

44.5

44.6

44.4

43.4

43.2

43.1

42.7

10.1
7.5
17.9
1.2
2.9
4.9
4.1
4.3
8.3
9.6
-5.3

-2.3

5.3

-4.3

-0.2

10.1
7.0
17.2
1.0
4.4
4.9
4.1
-2.5
1.5
0.8
-3.3

-2.7

-1.3

-2.1
2.2

2.0
2.2

14.41

0.54

-0.57
6.61

10.1
6.9
17.1
1.0
4.3
5.0
4.1
-2.5
1.6
0.8
-3.3

-3.0

-1.1

-1.9
2.3

2.2
2.4

-9.47

0.54

-0.57
-3.76

9.9
6.8
16.8
1.1
4.6
4.3
4.2
-2.9
1.2
0.0
-2.9

-2.0

-2.0

-2.0
0.1

2.1
0.1

-0.11

0.54

-0.57
0.20

9.9
6.5
16.6
1.0
4.4
4.8
4.2
-2.2
2.0
0.2
-2.4

-2.6

-1.0

-1.2
0.8

3.0
0.9

-2.49

0.54

-0.57
-0.75

10.2
6.4
16.2
0.9
4.4
4.9
4.1
-1.9
2.2
0.0
-1.9

-1.7

-1.1

-1.1
0.1

3.0
0.0

10.2
6.2
15.9
1.1
4.2
5.1
3.7
-1.5
2.2
0.0
-1.5

-1.2

-0.9

-0.9
0.2

2.8
-0.2

1.70

0.54

-0.57
0.44

2.17

0.54

-0.57
0.62

n.a.

n.a.

3.41

-2.26

-0.16

0.53

CP
-8.0

0.5
0.6
-0.1
-9.0
-2.2

-1.8

0.1
-1.3
-2.0
-0.1
1.3
0.2
-0.4
-5.8
-6.1
-9.6
3.8

1.1

-6.3

3.3

3.0

-

-

-
-

-

Notes:
1On a no-policy-change basis.
2Output gap (in % of potential GDP) and cyclically-adjusted balance according to the programme as recalculated by the Commission on the 
basis of the information in the programme.
3Structural (primary) balance = cyclically adjusted (primary) balance excluding one-off and other temporary measures.
4M odified expenditure aggregate used for the expenditure benchmark, growth rates net of non-discretionary changes in unemployment benefit 
and of discretionary measures.
5The reference rates applicable to 2014 onwards will be available from mid-2012. For illustrative purposes, the current reference rates have 
also been applied to the years 2014 onwards.
6The (standard) reference rate applies starting in the year following the one in which the country reaches its M TO.
7The lower reference rate applies as long as the country is adjusting towards its M TO, including the year in which it reaches the M TO.

Source :
Convergence programme (CP); Commission spring 2012 forecasts (COM); Commission  calculations.

33 

 
 
Table IV. Debt dynamics 

(% of GDP)

Gross debt ratio1
Change in the ratio
Contributions 2 :

1. Primary balance
2. S now-ball effect

Of which:
Interest expenditure
Growth effect
Inflation effect

3. S tock-flow adjustment

Of which:
Cash/accruals diff.
Accum. financial assets

Privatisation

Val. & residual effects

Average 
2006-10

73.4
3.9

1.2
1.7

4.2
0.3
-2.8
1.0

2011

80.6
-0.8

-8.3
0.0

4.1
-1.3
-2.7
7.5

2012

2013

COM

78.5
-2.1

-1.5
0.8

4.1
0.2
-3.5
-1.4

CP

78.4
-2.2

-1.6
0.8

4.1
-0.1
-3.2
-1.4

COM

78.0
-0.4

-1.2
0.7

4.2
-0.7
-2.7
0.1

CP

77.0
-1.4

-2.0
0.9

4.2
-1.2
-2.1
-0.2

2014
CP

73.7
-3.3

-2.2
0.1

4.1
-1.8
-2.1
-1.2

2015
CP

72.7
-1.0

-2.2
0.0

3.7
-1.7
-1.9
1.2

Gap to the debt benchmark5,6

S tructural adjustment7

To be compared to:
Required adjustment8

-

-

-

0.0

0.0

0.0

0.0

2011

2012

2013

COM/S P3

S P4

COM/S P3

S P4

-

-

-

-

-

-

-

-

-

-

0.8

0.2

-

0.8

0.0

2014
S P

-

0.1

0.0

2015
S P

-

0.2

0.0

Notes:
1End of period.
2The snowball effect captures the impact of interest expenditure on accumulated debt, as well as the impact of real GDP growth 
and inflation on the debt ratio (through the denominator). The stock-flow adjustment includes differences in cash and accrual 
accounting, the accumulation of financial assets and valuation and other residual effects. 

3 Assessment of the consolidation path set in CP assuming growth follows the COM  forecasts.

4Assessment of the consolidation path set in the CP assuming growth follows the SP projections.

5Not relevant during EDP that were ongoing in November 2011 and in the three years following the correction of the excessive 
deficit.

6Shows the difference between the debt-to-GDP ratio and the debt benchmark. If positive, projected gross debt-to-GDP ratio does 
not comply with the debt reduction benchmark.
7Applicable only during the transition period of three years from the correction of the excessive deficit for EDP that were ongoing 
in November 2011.

8Defines the remaining annual structural adjustment over the transition period which ensures that - if followed – M ember State 
will comply with the debt reduction benchmark at the end of the transition period, assuming that COM  (CP) budgetary 
projections are achieved.

Source :
Convergence programme (CP); Commission spring 2012 forecasts (COM); Commission calculations.

34 

 
 
 
 
Table V. Sustainability indicators 

HU

No-policy 
change 
scenario 

Convergence 
programme 
scenario

No-policy 
change 
scenario 

EU27

SCPs 
scenario

S2
of which:

Initial budgetary position (IBP)
Long-term change in the primary balance (LTC)
 of which:

pensions
health care and long term care
others

S1 (required adjustment)*

0.5

-0.5
1.0

0.4
1.0
-0.4
-0.7

0.0

-1.1
1.1

0.6
1.0
-0.5
-1.8

2.9

0.7
2.3

1.1
1.5
-0.3
2.2

0.7

-1.6
2.4

1.2
1.5
-0.3
-0.1

Debt, % of GDP (2011)
Age-related expenditure, % of GDP (2011)
Source : Commission, 2012 convergence programme.
Note : the 'no policy change' scenario depicts the sustainability gap under the assumption that the budgetary 
position evolves according to the spring 2012 forecast until 2013. The 'convergence programme' scenario depicts 
the sustainability gap under the assumption that the budgetary plans in the programme are fully implemented.

82.8
25.8

80.6
22.3

* The required adjustment of the primary balance until 2020 to reach a public debt of 60% of GDP by 2030.

Figure. Medium-term debt projection  

(% of GDP)
90

Gross debt as % of GDP - HU - Medium term debt projections

80

70

60

50

40

30

20

10

0

0
0
0
2

2
0
0
2

4
0
0
2

6
0
0
2

8
0
0
2

0
1
0
2

2
1
0
2

4
1
0
2

6
1
0
2

8
1
0
2

0
2
0
2

COM no-policy change scenario
COM + Shock ( -1p.p. in the short-term/long-term interest rate on maturing and new debt from 2014)
COM + Shock (+1p.p. in the short-term/long-term interest rate on maturing and new debt from 2014)
COM consolidation scenario (0.5% per year on SB) in order to achieve MTO
COM consolidation scenario (1% per year on SB) in order to achieve MTO
SP scenario

35 

 
 
 
 
Table VI. Taxation 

Total tax revenues (incl. actual compulsory social contributions, % of GDP)
Breakdown by economic function (% of GDP)1
     Consumption

              of which:

              - VAT

             - excise duties on tobacco and alcohol

             - energy

             - other (residual)

     Labour employed

     Labour non-employed

     Capital and business income

     Stocks of capital/wealth
     p.m.  Environmental taxes2
3
VAT efficiency
     Actual VAT revenues as % of theoretical revenues at standard rate

2001

38.7

2005

37.4

2007

40.4

2008

40.3

2009

40.1

2010

37.7

14.7

14.5

14.7

14.3

15.2

14.8

8.1

1.1

2.3

3.1

8.4

1.2

2.1

2.8

8.1

1.4

2.0

3.2

7.8

1.4

2.0

3.2

8.6

1.6

2.0

3.1

8.7

1.3

2.0

2.7

18.6

17.9

19.3

19.8

19.0

17.4

0.7

3.7

1.0

2.9

0.3

3.3

1.3

2.8

0.8

4.2

1.4

2.8

1.0

3.8

1.5

2.7

1.0

3.4

1.5

2.7

0.9

2.2

2.5

2.6

48.2

48.8

58.7

57.1

49.8

52.4

Note: 
1 T ax revenues are broken down by economic function, i.e. according to whether taxes are raised on consumption, labour or capital. See European Commission (2012), 

T axation trends in the European Union, for a more detailed explanation.

2 T his category comprises taxes on energy, transport and pollution and resources included in taxes on consumption and capital.

3 T he VAT  efficiency is measured via the VAT  revenue ratio. T he VAT  revenue ratio is defined as the ratio between the actual VAT  revenue collected and the revenue 

that would theoretically be raised if VAT  was applied at the standard rate to all final consumption. A low ratio can indicate a reduction of the tax base due to large 

exemptions or the application of reduced rates to a wide range of goods and services ('policy gap') or a failure to collect all tax due to e.g. fraud ('collection gap'). See 

European Commission (2011), T ax reforms in EU Member States, European Economy 5/2011, for a more detailed explanation.

Source: Commission

36 

 
 
 
Table VII. Financial market indicators 

Total assets of the banking sector (% of GDP)
Share of assets of the five largest banks (% of total assets)
Foreign ownership of banking system (% of total assets)
Financial soundness indicators:
              - non-performing loans (% of total loans) 1)
              - capital adequacy ratio (%) 1) 2)
              - return on equity (%) 1), 3)
Bank loans to the private sector (year-on-year % change)
Lending for house purchase (year-on-year % change)
Loan to deposit ratio
CB liquidity as % of liabilities
Banks' exposure to countries receiving official financial assistance  (% of GDP)4)
Private debt (% of GDP)
Gross external debt (% of GDP) 4)
            - Public
            - Private
Long term interest rates spread versus Bund (basis points)*
Credit default swap spreads for sovereign securities (5-year)*
Notes: 
1) Latest September 2011.
2) The capital adequacy ratio is defined as total capital divided by risk weighted assets.   
3) Net income to equity ratio. 
4) Latest data 2011Q3.
* M easured in basis points.
Source :

2007

2008

2009

2010

2011

113.1
54.1
57.9

2.3
10.4
18.4
16.0
15.9
128.4
0.0
…
…

34.6
56.0
252.8
53.1

121.3
54.4
64.0

3.0
12.4
16.7
13.8
18.5
139.2
0.6
…
65.2

38.8
76.9
425.4
205.8

142.7
55.2
54.1

6.7
13.9
8.3
-5.0
0.0
132.4
0.0
…
71.5

46.4
85.5
590.1
338.3

129.7
54.7
…

9.8
13.9
0.4
0.5
6.8
136.7
0.1
…
68.4

46.0
70.2
453.8
288.3

115.7
…
…

12.3
13.5
1.3
-12.3
-14.0
128.1
0.0
…
…

51.1
65.6
502.7
382.4

Bank for International Settlements and Eurostat (exposure to macro-financially vulnerable countries), IMF (financial soundness indicators), 
Commission (long-term interest rates), World Bank (gross external debt), ECB (all other indicators).

37 

 
Table VIII. Labour market and social indicators 

Labour market indicators
Employment rate 
(% of population aged 20-64)
Employment growth 
(% change from previous year)
Employment rate of women 
(% of female population aged 20-64)
Employment rate of men 
(% of male population aged 20-64)
Employment rate of older workers 
(% of population aged 55-64)
Part-time employment 
(% of total employment)
Part-time employment of women  
(% of women employment)
Part-time employment of men  
(% of men employment)
Fixed term employment 
(% of employees with a fixed term contract)
Unemployment rate1 (% of labour force)
Long-term unemployment2  (% of labour force)
Youth unemployment rate 
(% of youth labour force aged 15-24)

2006

2007

2008

2009

2010

2011

62.6

62.6

61.9

60.5

60.4

60.7

0.7

-0.1

-1.2

-2.5

0.0

0.8

55.7

55.5

55.1

54.4

55.0

54.9

69.9

70.2

69.0

67.0

66.0

66.8

33.6

33.1

31.4

32.8

34.4

35.8

4.0

5.6

2.6

6.7

7.5

3.4

4.2

5.8

2.8

7.3

7.4

3.4

4.7

6.2

3.3

7.9

7.8

3.6

19.1

18.0

19.9

5.6

7.5

4.0

8.5

10.0

4.2

26.5

5.9

8.1

3.9

9.7

11.2

5.5

26.6

Youth NEET3 rate (% of population aged 15-24)

12.4

11.3

11.5

13.4

12.4

Early leavers from education and training (% of 
pop. 18-24 with at most lower sec. educ. and not 
in further education or training)
Tertiary educational attainment (% of population 
30-34 having successfully completed tertiary 
education)
Labour productivity per person employed 
(annual % change )
Hours worked per person employed  (annual % 
change)
Labour productivity per hour worked (annual % 
change; constant prices)
Compensation per employee (annual % change; 
constant prices)
Nominal unit labour cost growth (annual % 
change)

12.6

11.4

11.7

11.2

10.5

20.7

22.0

24.0

25.1

26.0

3.5

0.1

-0.2

-0.2

3.7

2.0

2.0

0.3

0.9

6.3

0.8

2.4

0.2

2.2

1.5

4.3

-4.2

-0.9

-3.2

-4.8

2.9

-0.9

-0.6

0.9

-0.3

1.3

-5.3

-3.2

-6.1

Real unit labour cost growth (annual % change)

-1.4

Notes:

1 According to ILO definition, age group 15-74)
2 Share of persons in the labour force who have been unemployed for at least 12 months.
3 NEET are persons that are neither in employment nor in any education or training.

Sources: 
Commission (EU Labour Force Survey and European National Accounts) 

38 

6.8

9.3

4.8

8.9

10.9

5.2

26.1

:

:

:

1.4

0.9

0.5

2.2

4.4

0.8

 
Table VIII. Labour market and social indicators (continued) 

Expenditure on social protection 
benefits (% of GDP)
Sickness/Health care
Invalidity
Old age and survivors
Family/Children
Unemployment
Housing and Social exclusion n.e.c.
Total
of which:  Means tested benefits
Social inclusion indicators
Risk-of-poverty or exclusion1 (% of total 
population)
Risk-of-poverty or exclusion of children (% of 
people aged 0-17)
Risk-of-poverty or exclusion of elderly (% of 
people aged 65+)
At-risk-of-poverty rate2 (% of total population)
Value of relative poverty threshold (single 
household per year) - in PPS
Severe material deprivation3  (% of total 
population)
Share of people living in low work intensity 
households 4 (% of people aged 0-59 not 
student)
In-work at-risk-of poverty rate (% of persons 
employed)

Notes:

2005

2006

2007

2008

2009

6.41
2.12
7.83
2.53
0.62
0.51
21.9
1.14

6.35
2.16
8.00
2.83
0.67
0.54
22.5
0.96

5.67
2.15
8.42
2.85
0.77
0.92
22.7
1.42

5.62
2.10
8.84
2.86
0.83
0.72
22.9
1.22

5.68
2.09
9.10
3.03
0.97
0.63
23.4
1.17

2006

2007

2008

2009

2010

31.4

29.4

28.2

29.6

29.9

37.7

34.1

33.4

37.2

38.7

23.9

15.9

21.1

12.3

17.5

12.4

17.5

12.4

16.8

12.3

3646

3894

3958

4102

4011

20.9

19.9

17.9

20.3

21.6

13.0

11.3

12.0

11.3

11.8

6.8

5.8

5.8

6.2

5.3

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 (SM D) and/or living in households with zero or very low 
work intensity (LWI).

2 At-risk-of poverty rate: share of people with an equivalised disposable income below 60% of the national 
equivalised median income. 

3 Share of people who experience at least 4 out of 9 deprivations: people cannot afford to i) pay their rent or 
utility bills, ii) keep their home adequately warm, 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.

4 People living in households with very low work intensity: share of people aged 0-59 living in households 
where the adults work less than 20% of their total work-time potential during the previous 12 months.

Sources: 
For expenditure on social protection benefits ESSPROS; for social inclusion EU-SILC.

39 

 
 
Table IX. Product market performance and policy indicators 

Performance indicators

Labour productivity1 total economy (annual 
growth in %)
Labour productivity1 in manufacturing (annual 
growth in %)
Labour productivity1 in electricity, gas, water 
(annual growth in %)
Labour productivity1 in the construction sector 
(annual growth in %)
Patent intensity in manufacturing2 (patents of the 
EPO divided by gross value added of the sector)

2002-
2006

4.1

7.6

-1.7

2007

2008

2009

2010

2011

1.1

6.0

4.5

2.1

-4.0

1.0

1.7

-0.4

-6.3

12.1

n.a.

13.4

-12.0

n.a.

n.a.

-0.1

-9.1

-4.2

-4.8

-4.7

n.a.

0.9

0.9

0.7

n.a.

n.a.

n.a.

Policy indicators

Enforcing contracts 3 (days)
Time to start a business 3 (days)
R&D expenditure (% of GDP)
Tertiary educational attainment 
(% of 30-34 years old population)
Total public expenditure on education 
(% of GDP)

Product market regulation4, Overall
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Retail
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Network Industries 5
(Index; 0=not regulated; 6=most regulated)

2002-
2006

n.a.

n.a.
1.0

2007

2008

2009

2010

2011

335

16
1.0

335

5
1.0

395

4
1.2

395

4
1.2

17.2

20.1

22.4

23.9

25.7

395

4
n.a.

n.a.

5.5

5.2

5.1

n.a.

n.a.

n.a.

2005

2006

2008

2009

2010

2011

n.a.

n.a.

n.a.

n.a.

1.3

2.1

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

2.8

2.6

1.8*

n.a.

n.a.

n.a.

Notes:
1Labour productivity is defined as gross value added (in constant prices) divided by the number of persons employed.
2 Patent data refer to applications to the European Patent Office (EPO). They are counted according to the year in which 
they were filed at the EPO. They are broken down according to the inventor's place of residence, using fractional counting if 
multiple inventors or IPC classes are provided to avoid double counting. 
3 The methodologies, including the assumptions, for this indicator are presented in detail on the website 
http://www.doingbusiness.org/methodology. 
4 The methodologies for the product market regulation indicators are presented in detail on the website 
http://www.oecd.org/document/1/0,3746,en_2649_34323_2367297_1_1_1_1,00.html. The latest available product market 
regulation indicators refer to 2003 and 2008, except for Network Industries.

5 Aggregate ET CR.

*figure for 2007.

Source :

Commission, World Bank - Doing Business  (for enforcing contracts and time to start a business) and OECD (for the 
product market regulation indicators). 

40 

 
Table X. Indicators on green growth 

Hungary

Green Growth performance

Macroeconomic
Energy intensity 
Carbon intensity 
Resource intensity (reciprocal of resource productivity)
Waste intensity 
Energy balance of trade 
Energy weight in HICP
Difference between change energy price and inflation 
Environmental taxes over labour taxes
Environmental taxes over total taxes

Sectoral 

Industry energy intensity 
Share of energy-intensive industries in the economy
Electricity prices for medium-sized industrial users 
Public R&D for energy 
Public R&D for the environment
Recycling rate of municipal waste
Share of GHG emissions covered by ETS
Transport energy intensity
Transport carbon intensity
Change in the ratio of passenger transport and GDP

Security of energy supply
Energy import dependency
Diversification of oil import sources 
Diversification of energy mix
Share of renewable energy in energy mix

2001-
2005

0.46
1.39
2.60
n.a.
-2.8%
13
n.a.
14.7%
7.2%

0.22
10.7
0.06
n.a.
n.a.
11.6%
n.a.
0.75
2.03
-4.4%

59.3%
n.a.
0.29
3.6%

kgoe / €
kg / €
kg / €
kg / €
% GDP
%
%
ratio
ratio

kgoe / € 
% GDP
€ / kWh
% GDP
% GDP
ratio
%
kgoe / €
kg / €
%

%
HHI
HHI
%

2006

2007

2008

2009

2010

0.43
1.21
2.36
0.35
-6.3%
13
3.3
15.4%
7.6%

0.17
11.0
0.08
0.04%
0.04%
18.7%
33.2%
0.77
2.13
-3.6%

62.7%
0.96
0.28
4.5%

0.41
1.18
1.84
0.33
-4.6%
13
15.4
14.0%
7.0%

0.15
11.1
0.08
0.01%
0.01%
20.4%
35.6%
0.66
1.82
-10.5%

61.3%
0.95
0.27
5.1%

0.41
1.13
2.05
0.31
-6.2%
14
7.5
13.0%
6.7%

0.15
11.2
0.11
0.01%
0.02%
23.8%
37.3%
0.68
1.82
0.3%

63.4%
1.00
0.27
5.9%

0.41
1.11
1.80
n.a.
-4.8%
14
3.1
13.3%
6.6%

0.14
11.2
0.12
0.01%
0.02%
24.9%
33.6%
0.77
2.05
n.a.

58.8%
1.00
0.25
7.3%

0.42
n.a.
n.a.
n.a.
-5.0%
15
1.6
n.a.
n.a.

n.a.
n.a.
0.10
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

n.a.
n.a.
n.a.
n.a.

Country-specific notes: 
The year 2011 is not included in the table due to lack of data.
General explanation of the table items:
Source: Eurostat unless indicated otherwise; ECFIN explanations given below
All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2000 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 M aterial 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 exports and imports, expressed as % of GDP  
Energy weight in HICP: the share of the "energy" items in the consumption basket used in the construction of the HICP
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual %-change)
Environmental taxes over labour or total taxes: from DG TAXUD's database "Taxation trends in the European Union"
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in EUR) 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP
Recycling rate of municipal waste: ratio of municipal waste recycled over total municipal waste
Public R&D for energy or for the environment: government spending on R&D (GBAORD) for these categories as % of GDP
Share of GHG emissions covered by ETS: based on greenhouse gas emissions as reported by M ember States to EEA (excl LULUCF)
Transport energy intensity: final energy consumption of transport (in kgoe) divided by gross value added of industry (in EUR) 
Transport carbon intensity:  greenhouse gas emissions in transport divided by gross value added of the transport sector
Passenger transport growth : measured in %-change in passenger kilometres
Energy import dependency: net energy imports divided by gross inland energy consumption incl. of international bunkers
Diversification of oil import sources: Herfindahl index (HHI), calculated as the sum of the squared market shares of countries of origin 

Diversification of the energy mix: Herfindahl Index over natural gas, total petrol products, nuclear heat, renewable energies and solid fuels

Share of renewable energy in energy mix: percentage-share in  gross inland energy consumption, expressed in tonne oil equivalents

41