COMMISSION STAFF WORKING DOCUMENT 2022 Country Report - Hungary Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the 2022 National Reform Programme of Hungary and delivering a Council opinion on the 2022 Convergence Programme of Hungary
Date: 2022-05-23
Institutions: European Commission, Secretariat-General
Subjects: Hungary, economic policy, economic recovery, economic reform, energy policy, independence of the judiciary, investment, labour market, public finance, stability pact, stability programme

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 23.5.2022  SWD(2022) 614 final  COMMISSION STAFF WORKING DOCUMENT 2022 Country Report - Hungary Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the 2022 National Reform Programme of Hungary and delivering a Council opinion on the 2022 Convergence Programme of Hungary {COM(2022) 614 final} - {SWD(2022) 640 final}  
 
 
 
 
 
 
 
 
 
 
 
ECONOMIC AND EMPLOYMENT SNAPSHOT 

Hungary’s economy has caught up 
significantly over the years 

Since  joining  the  EU  in  2004,  Hungary’s 
GDP per person rose from around 63% of 
the EU average to 76% in 2021. Hungary’s 
entry  to  the  single  market  attracted  large 
foreign investments, which brought capital and 
technology  into  the  country.  This  boosted 
productivity  growth  and  connected  companies 
to  global  production  networks.  Hungary  has 
also  received  significant  EU  funding,  which 
supported  economic  development  and  raised 
the  public  investment  ratio  to  one  of  the 
highest in the EU. 

economy 

The  Hungarian 
rebounded 
quickly  from  the  2020  recession  caused 
by  the  COVID-19  pandemic.  Real  GDP  fell 
by 4.5% in 2020 but bounced back by 7.1% in 
2021,  surpassing  its  pre-pandemic  level.  A 
strong  policy  stimulus  was  put  in  place  to 
respond to the crisis, with measures such as a 
comprehensive  moratorium  on  bank 
loan 
payments,  public  loan  guarantees,  grants  and 
subsidised  financing  for  private  investment. 
Hungary was granted a maximum of EUR 651 
million  in  temporary  EU  support  through  the 
Support to Mitigate Unemployment Risks in an 
Emergency (SURE) scheme (see also Annex 3). 

The Russia’s invasion of Ukraine is 
clouding the outlook… 

is  vulnerable  to 
Hungary’s  economy 
Russia’s invasion of Ukraine, taking place 
at  its  doorstep.  Ukraine  and  Russia  jointly 
account for 3.4% of Hungary’s exports, one of 
the higher shares in the EU. The most exposed 
sectors  are  agriculture  and  pharmaceuticals, 
with  over  10%  of  exports  from  these  sectors 

is  an 

going  to  Ukraine  or  Russia.  There  are  further 
vulnerabilities in inputs to production, because 
Ukraine 
of 
intermediate  products  for  the  electronics  and 
metal industries in Hungary,  while oil  and gas 
from  Russia  are  key  inputs  for  the  energy,  oil 
refining and chemical industries. 

important 

supplier 

Graph 1.1: Consumer and producer prices in 
Hungary 

Source: Eurostat 

Economic  growth  is  expected  to  stall 
while  inflation  is  set  to  remain  high. 
Besides its impact on external trade, the war in 
Ukraine  will  also  affect  growth  by  reducing 
business  confidence,  raising  financing  costs 
and  eroding  consumers’  purchasing  power 
through higher inflation. Following the Russia’s 
invasion  of  Ukraine,  capital  outflows  from 
Hungary  led  to  currency  depreciation,  while 
global  energy  and  food  prices  soared.  These 
trends  are  expected  to  raise  inflation  in 
Hungary to 9.0% in 2022. GDP growth is set to 
slow  to  3.6%  in  2022  and  2.6%  in  2023. 
Higher  commodity  prices  are  also  set  to 
worsen the external balance, as Hungary’s net 
energy  imports  amounted  to  4.4%  of  its  GDP 

2 

0246810121416Mar 2017Sep 2017Mar 2018Sep 2018Mar 2019Sep 2019Mar 2020Sep 2020Mar 2021Sep 2021Mar 2022Annual change (%)Consumer prices (HICP, all items)Producer prices (consumer goods, domestic market) 
  
 
last  year.  The  current  account  deficit 
projected to reach 5.5% of GDP in 2022. 

is 

…and adding to pre-existing risks 

Following  a  period  of  strong  fiscal 
to 
expansion,  Hungary  now  plans 
gradually cut its budget deficit and public 
debt.  The  deficit  reached  7.8%  in  2020  and 
6.8%  in  2021,  reflecting  high  expenditure  in 
response to the pandemic, support provided to 
companies  and  elevated  public  investment. 
Hungary’s public debt rose from 65.5% of GDP 
in 2019 to 79.6% in 2020 and 76.8% in 2021. 
The  deficits  are  also  set  to  remain  high 
compared  to  the  EU  average  and  many 
regional peers both in 2022 and in 2023. The 
additional  tax  revenue  generated  by  a  strong 
economic  recovery  in  2021  has  been  largely 
spent,  for  example  on  reintroducing  the  13th 
month pension, a one-off refund of income tax 
in  early  2022  and  cuts  to 
to  families 
employers’  social  security  contributions.  Some 
of  these  measures  will  continue  to  weigh  on 
the  budget  in  the  longer  term.  The  budgeting 
practices of recent years, in particular the use 
of  large  reserves  that  can  be  spent  in  good 
economic  times  with  limited  parliamentary  or 
public scrutiny, have increased the pro-cyclical 
bias of fiscal policy and may result in spending 
on lower quality projects.  

stall 
spending  pressures  will 
New 
government’s  deficit  reduction  plans.  The 
uncertain  geopolitical  and  macroeconomic 
context  will  pose  a  series  of  challenges  to 
Hungary’s  fiscal  policy  in  the  coming  years, 
which,  absent  policy  adjustment,  will  make  it 
challenging  for  the  government  to  meet  the 
2022 deficit target set in the budget law. The 
state  will  likely  have  to  step  in  to  cover  the 
expected  large  losses  of  mostly  state-owned 
utility  companies,  which  are  currently  bearing 
most  of  the  cost  of  rising  energy  prices. 
Further  spending  pressures  are  related  to  the 
cost  of  caring  for  people  fleeing  Ukraine  and 
public sector wages.  

Additional  EU  funds  can  partly  cover  the 
higher spending needs. Hungary will benefit 
from  the  exceptional  flexibilities  provided  in 

the  framework  of  the  CARE  Regulation  and 
additional  pre-financing  under  REACT-EU  to 
urgently  address  reception  and  integration 
needs for those fleeing Ukraine as a result of 
the Russia’s invasion.  

Graph 1.2: Budget deficit in Hungary and the 
EU 

Source: European Commission 

challenging 

Global  uncertainty  and  high  inflation  are 
also  increasing  Hungary’s  debt-servicing 
costs.  In  recent  years,  the  Hungarian  debt 
management  agency 
took  advantage  of 
favourable financing conditions to improve the 
structure  of  public  debt.  Maturities  became 
longer,  and  the  burden  of  interest  decreased. 
However, a significant share of debt still needs 
to  be  refinanced  in  the  coming  years,  in  a 
macroeconomic 
more 
environment.  Hungary’s  debt  servicing  costs 
have  already  increased  significantly  due  to 
higher 
inflation  expectations,  the  end  of 
government  bond  purchases  by  the  central 
bank  and  more  cautious  global  sentiment 
since the invasion of Ukraine. The yields of 10-
year government bonds increased from around 
2% at the beginning of 2021 to near 7.5% in 
the  first  half  of  May  2022.  There  are 
additional  vulnerabilities  related  to  Hungary’s 
reliance  on  foreign  currency  funding,  and  the 
large volume of bonds sold to retail  investors 
as savings products. Some of these bonds can 
be redeemed by retail investors at short notice 
with limited penalty. These bonds could create 
a  large  financing  need  for  the  government  if 

3 

012345678920202020202120212022202220232023% of GDPPrimary budget deficit, HungaryInterest expenditure, HungaryPrimary budget deficit, EUInterest expenditure, EUHungary's official deficit target 
  
there is a sudden change in the confidence of 
retail investors.   

Surging house prices point to risks in the 
housing  market.  House  prices  more  than 
doubled  between  2013  and  2020  in  nominal 
terms,  which  was  the  largest  increase  in  the 
EU. They have also continued to rise since the 
start  of  the  pandemic.  Government  subsidy 
programmes  boosted  the  demand  for  home 
ownership, while capacity shortages and rising 
costs  limited  new  construction.  The  risk  of 
increased, 
house  price  overvaluation  has 
especially  on  the  Budapest  market,  which  is 
more  attractive  to  international  investors  and 
tourism.  Although  household  indebtedness  is 
low in comparison to other EU members, it has 
risen  more  rapidly  recently,  and  increasing 
interest  rates  might  create  difficulties  for 
some  borrowers.  The  European  Systemic  Risk 
considers  macroprudential 
Board 
policies 
this  area  are  only  partially 
appropriate and sufficient.  It therefore, issued 
a warning to Hungary in February 2022, asking 
it to address these challenges (see Annex 16). 

(ESRB) 
in 

Productivity growth needs to 
increase 

in 

the 

strong 

Although  economic  growth  in  Hungary 
was 
last  decade, 
productivity growth stalled in this period. 
Since 2010, GDP growth was mostly driven by 
the rising number of workers in the Hungarian 
economy.  The  employment  rate  in  the  20-64 
age group rose from 62% in 2010 to 78.8% in 
2021,  well  above  the  EU  average  of  73.1%. 
However,  employment  growth  already  slowed 
down  in  2019,  and  many  firms  found  it 
difficult 
The 
government  aims  to  boost  the  employment 
rate  further,  to  85%  by  2030.  In  contrast  to 
employment, 
labour  productivity  gap 
compared  to  the  EU  has  not  decreased  since 
2010.  A  Hungarian  worker  produces  on 
average  32% 
less  value  added  than  an 
average worker in the EU, after accounting for 
the lower price level and longer working hours 
in Hungary. 

skilled  workers. 

to  hire 

the 

of 

the 

European 

A renewed focus on productivity is key to 
securing  long-term  growth.  A  priority  for 
Hungary  is  to  shift  from  labour-intensive  and 
resource-intensive assembly activities to more 
advanced  and  productive  tasks  within  global 
value  chains.  This  requires  more  innovation 
and  better  functioning  markets.  To  achieve 
these,  Hungary  needs  more  highly  skilled 
workers  and  a  more  hospitable  business 
environment. Currently, Hungary is among the 
laggards 
Innovation 
Scoreboard and its performance relative to the 
EU  has  decreased  over  time  (see  also  Annex 
9).  Hungary  also  missed  its  Europe  2020 
targets  in  the  field  of  education:  early  school 
leaving  has  increased  since  2010  and  the 
share of tertiary graduates remains well below 
the  EU  average.  While  Hungary’s  government 
has  promoted  and  subsidised  export-oriented 
investments, several services that cater to the 
domestic  market  have  experienced  increasing 
state  intervention.  This  increased  intervention 
has  been in  the  form  of  sector-specific  taxes, 
government 
legislation  and 
tailor-made 
decisions 
transactions. 
targeting  business 
These  interventions  have  reduced  competition 
and  hindered  the  growth  of  more  efficient 
the 
companies.  Additional  challenges  for 
business  environment  include  weaknesses  in 
the 
judicial 
independence and quality of law-making. (1)  

anti-corruption 

framework, 

(1)  See also the most recent OECD Economic Survey of 

Hungary, published in July 2021, which partly builds on 
the 2020 country report and the 2021 rule of law 
report of the European Commission. 

4 

 
                                                 
Graph 1.3: GDP per capita and labour 
productivity relative to the EU 

(1) At purchasing power standard 
Source: Eurostat 

standards 

Living 
in  Hungary  have 
improved  in  the  past  decade,  but  the 
benefits of growth were unevenly shared. 
This  is  evidenced  by  the  Social  Scoreboard 
supporting the European Pillar of Social Rights 
(see  Annex  12).  Thanks  to  rising  employment 
and  higher  wages,  more  than  1  million 
Hungarians  have  been  lifted  out  of  severe 
material  deprivation  since  2010. (2)  However, 
out  of  the  9.7  million  inhabitants,  around  1 
million remain unable to afford essential items 
for  an  acceptable  standard  of  living.  The  tax 
and benefit system is geared towards higher-
income  families  with  multiple  children.  These 
households  tend  to  gain  the  most  from 
Hungary’s flat personal income tax, the income 
tax  allowance  for  children,  housing  subsidies 
and other forms of support. Meanwhile, in the 
past  10  years,  the  social  safety  net  has 
weakened 
stable 
employment and gaps in the social  protection 
system  remain  for  the  unemployed  and  for 
workers 
of 
non-standard 
employment.  Social  benefits,  which  are  a 
major  source  of  income  for  disadvantaged 
households, have not kept up with the cost of 
living for many years. The poorest Hungarians 

families  without 

forms 

for 

in 

(2)  People in severe material deprivation cannot afford at 
least 4 out of 9 predefined material items which are 
considered by most people to be desirable or even 
necessary to lead an adequate life. 

5 

therefore  became  even  poorer.  Poverty  and 
social  exclusion  are  also  related  to  the  large 
territorial differences within Hungary. Although 
all regions have been catching up with the rest 
of  the  EU since Hungary’s  accession,  some  of 
them  remain  among  the 
least-developed 
regions  in  the  EU.  In  addition,  there  are  large 
internal 
regions 
themselves (see also Annex 15).  

disparities  within 

the 

related 

indicators 

several  SDG 

Hungary’s  performance  in  achieving  the 
United  Nations  Sustainable  Development 
Goals (SDGs) is in line with that of other 
EU countries. Although Hungary is improving 
on 
to 
environmental sustainability (SDGs 2, 6, 11, 12 
and 13), the current status of these indicators 
remains below the EU average. In the area of 
fairness,  Hungary  performs  well  on  SDG 
indicators  related  to  growth,  employment  and 
poverty  reduction  (SDGs  1  and  8).  It  is  also 
improving  on  health  indicators  (SDG  3),  but  it 
needs to make further progress in a number of 
areas related to education and gender equality 
(SDGs  4,  5  and  10).  Hungary  shows  mixed 
performance  on  SDG  indicators  related  to 
productivity  (SDGs  8  and  9)  and  it  needs  to 
catch up on indicators related to adult learning 
(SDG 4) (see also Annex 1). 

Hungary is at the early stage of 
the green and digital transitions 

imported 

limited  domestic 

Moderate  policy  ambition  is  holding  back 
transition.  Although 
Hungary’s  green 
Hungary  has 
energy 
resources,  policies  have  focused  on  attracting 
resource-intensive  production 
tasks  within 
global value chains, while the regulated energy 
prices  limit  households’  incentives  for  the 
fuels. 
efficient  use  of 
Consequently,  Hungary  uses  more energy  and 
materials to produce a unit of income than the 
EU  average.  Contrary  to  the  general  trend 
among  other  EU  countries,  the  resource 
productivity of the Hungarian economy did not 
improve over the past decade. The poor energy 
efficiency  of  housing  and  polluting  residential 
heating methods are damaging air quality and 
posing  risks  to  public  health.  Greenhouse  gas 
increased 
emissions  from  transport  have 

fossil 

50556065707520002002200420062008201020122014201620182020% of EU averageGDP per inhabitantLabour productivity (GDP per hour worked) 
  
                                                 
strongly,  growing  by  46%  between  2013  and 
2019, well above the average increase of 8% 
in  the  EU  during  this  period.  Municipal  waste 
recycling  rates  are 
low  and  have  even 
decreased  in  recent  years.  In  its  national 
climate  and  energy  plan  Hungary  set 
renewable  energy  and  energy  efficiency 
targets for 2030 that are considered to be of 
low  ambition.  Sectors  that  are  likely  to  shrink 
or  transform  due  to  the  green  transition 
provide  jobs  for  nearly  4%  of  all  Hungarian 
workers,  who  could  be  in  particular  need  of 
upskilling  and  reskilling.  Labour  shortages  in 
the energy sector could hinder the transition to 
climate neutrality (see Annex 6).  

Index  2021 

Hungary  is  lagging  behind  in  the  digital 
transition. Hungary ranks 23rd out  of 27 EU 
Member  States  in  the  Digital  Economy  and 
Society 
(see  Annex  8).  The 
development of digital and software skills and 
the  integration  of  digital  technologies  into 
workplaces 
the  digital 
transformation  of  the  economy  and  society. 
More public services could be offered online in 
Hungary, and with a stronger focus on users.  

crucial 

for 

is 

6 

 
 
PRIORITIES AHEAD 
PRIORITIES AHEAD 

Hungary will  need to focus its efforts on 
key structural challenges to continue the 
catching-up process of recent decades. To 
secure  long-term  growth  prospects,  it  will  be 
crucial  for  Hungary  to  improve  its  business 
environment  and  institutions,  address  fiscal 
risks  stemming  from  population  ageing  and 
foster the green transition. Hungary also needs 
to  raise  its  level  of  ambition  in  policies 
labour  market,  healthcare, 
targeting 
education  and  skills.  Closing  the  gap 
in 
regional  and  within-region  disparities  would 
stimulate  long-term  sustainable  and  inclusive 
growth,  boosting  the  economic  potential  of 
Hungary’s less developed regions.  

the 

Population ageing and inequalities 
put pressure on Hungary’s pension 
system 

Decisive  policy  action  is  necessary  to 
address  the  effect  of  population  ageing 
on  public  finances.  Until  2030,  Hungary’s 
working-age  population  is  set  to  decrease  by 
4%, or about 250 000 people. Today, there are 
about  three  people  of  working  age people  for 
every  older  person  in  Hungary.  By  2070,  this 
ratio  will  fall  to  less  than  two  people  of 
working age for every older person. Population 
ageing  is  expected  to  result  in  a  gradual 
increase  in  public  spending  on  health  care, 
long-term  care  and  pensions.  Hungary’s 
in  pension 
projected 
expenditure is among the highest in the EU. It 
is forecast to rise from 8.3% of GDP in 2019 
to above 12.4% in 2070, putting an additional 
burden  on  future  taxpayers.  According  to  the 
Commission’s  projections,  Hungary’s  public 
debt  will  also  start  to  rise  in  a  decade  if 
ageing-related spending remains unaddressed. 
Overall,  the  European  benchmarks  point  to 
substantial challenges for Hungary in the long 
term  (for  a  more  detailed  analysis  of  the 

long-term 

increase 

sustainability  of  Hungarian  public  debt,  see 
Annex 19). 

in  the 

Policy  measures 
last  decade 
reversed  some  of  the  earlier  pension 
In  2009  and  2012,  several 
reforms. 
significant  pension  reforms 
improved  the 
sustainability of the pension system, such as a 
gradual  increase  in  the  statutory  retirement 
age  from  62  to  65  by  2022,  the  phasing  out 
of the 13th month of pension in 2009 and the 
removal  of  most  early-retirement  options  in 
2012.  However,  subsequent  measures  added 
to  the  sustainability  challenge,  such  as  a  new 
early-retirement  scheme  for  women  with  40 
years of service, and the recent reintroduction 
of the 13th-month pension. The latter measure 
increases  the  expenditure  on  pensions  by 
around  0.9%  of  GDP  annually  (Ageing  Report 
2021).   

increase 

inequality 

Some changes that Hungary made to the 
pension  system  are  not  only  costly  but 
also 
among 
pensioners.  Changes  to  tax  and  pension 
systems  since  2012  are  projected  to increase 
expenditure  on  the  pensions  of  high-wage 
retirees. These pensions can reach high levels 
because  there  is  no  ceiling  on  pensionable 
income,  and  there 
is  also  no  maximum 
pension (3).  The  limit  on  pensionable  income 
was  abolished  with  the  scrapping  of  the  cap 
on pension contributions in 2013. Furthermore, 
the  flat  personal  income  tax  introduced  in 
2011  boosted  pensionable  income  mainly  for 
high earners. At the other end of the spectrum, 
the minimum pension has remained nominally 
unchanged  since  2008.  This  contributes  to 
rising  income  inequalities  among  pensioners, 

(3)  Pensionable income is the basis for calculating an 

individual’s future pension benefits. It is calculated by 
deducting statutory tax and social security contributions 
from gross income over the retiree’s career. Pensionable 
income in Hungary is calculated with a degressive 
formula: above a certain threshold, only a fixed fraction 
of the retiree’s income is taken into account. 

7 

 
 
                                                 
 
which might become a pressing social issue in 
the future. 

gaps 

income 

between 

The 
older 
pensioners  and  those  who  retired  more 
recently are also rising. In Hungary, pension 
benefits are based on average earnings during 
a career, which are revalued  by the growth in 
net  average  wages  up  to  one  year  before 
retirement.  After  retirement,  pensions  are 
indexed to consumer prices. In the last 6 years, 
pensions  increased  by  2.7%  annually,  while 
wages grew more quickly, on average by 9.6%. 
As a result, the nominal benefits of pensioners 
who  retired  in  2022  were  more  than  40% 
higher  than  the  benefits  of  those  who  retired 
after  the  same  length  of  career  but  6  years 
earlier.  

Hungary’s long-term growth 
prospects depend on equipping 
people with the right skills 

increasing 

Education outcomes in Hungary are below 
the  EU  average,  according  to  the  Social 
Scoreboard  supporting 
the  European 
Pillar  of  Social  Rights.  Hungary  missed  its 
Europe 2020 targets for reducing early school 
tertiary  education 
leaving  and 
attainment. Contrary to European trends, early 
school leaving increased in Hungary in the last 
decade to 12.0% in 2021, which is above the 
EU  average  of  9.7%.  Early  school  leaving  is 
higher in the least developed districts, and six 
times  higher  among  the  Roma  than  the  non-
Roma.  The  share  of  25-34  year  old  people 
with  a  tertiary  diploma  has  risen  since  2010, 
but  remains  among  the  lowest  in  the  EU. 
Participation  in  adult  learning  in  Hungary  is 
just over half of the EU average. Digital  skills 
are  also  lacking,  especially  among  poorer 
people.  In  the  lowest  two  income  quartiles, 
only  13%  and  18%  of  Hungarians  have  at 
least basic digital  skills. These are among the 
lowest  percentages  in the  EU  (see  also  Annex 
13).  Tackling  these  challenges  is  key  for 
Hungary to contribute to reaching the 2030 EU 
headline target on skills. 

from 

Hungary’s  school  system  could  do  more 
to  support  social  mobility.  Performance-
based selection into different education tracks 
starts at the age of 10 in Hungary. This leads 
to  the  early  separation  of  underachieving 
pupils 
their  high-achieving  peers. 
Disadvantaged students have a low chance of 
entering  the  higher  educational  tracks (4).  The 
2019  reform  of  vocational  education  and 
training  (VET)  removed  the  possibility  for 
students  in  the  three-year  VET  schools  to 
obtain  the  upper-secondary-school 
leaving 
in  formal  day-time  education.  
certificate 
Inequality 
the 
education 
in 
possibilities for social mobility. Hungarian low-
income  families  have  the  lowest  chances  in 
the  EU  of  approaching  the  average  income 
level  in  their  country.  The  low  levels  of 
effectiveness  and  fairness 
in  the  school 
system  are  likely  linked  to  the  low  level  of 
curricular autonomy, the lack of socioeconomic 
diversity  within  schools  and  the  low  salaries 
for teachers. 

reduces 

for 

such 

specific 

subjects 

The shortage of teachers is increasingly a 
problem.  Aggregate  indicators,  such  as  the 
teacher-pupil 
ratio,  do  not  signal  acute 
shortages  of  teachers  in  Hungary.  However,  a 
more  detailed  analysis  shows  that  shortages 
exist 
as 
mathematics,  science  and  foreign  languages. 
Teacher  shortages  are  also  linked  to  the 
fragmentation of the school system as half of 
all  primary  and 
lower  secondary  schools 
(általános iskola) had fewer than 150 pupils in 
2020/2021. Schools with a high proportion of 
disadvantaged 
suffer 
particularly from the lack of qualified teachers. 
More  than  half  of  graduates  from  teacher-
education courses end up in other careers due 
to the high workload and low pay of teachers, 
especially at the beginning of their career. The 
number  of  teaching  hours  for  Hungarian 
teachers  is  the  highest  in  Europe,  and  in  the 
absence  of  sufficient  support  staff,  many 
teachers  must  perform  non-teaching  duties 
such as after-school care. Teacher salaries are 
the  lowest  among  the  EU  countries  that  are 
OECD members and are equivalent to only 58-
tertiary 
66%  of 

the  salaries  of  other 

pupils 

tend 

to 

(4)  Out of  the 116 680 higher education applicants in 

2021, only 636 were disadvantaged. 

8 

 
                                                 
graduates,  depending  on  educational  level. 
Moreover,  the  centralised  management  of 
schools  leaves  school  heads  with  limited 
autonomy  and  tools  to  improve  teaching 
quality. 

Graph 2.1: Teacher salary relative to the 
earnings of workers with tertiary education 

(1) Teachers at lower secondary education 
(2) CEE3: CZ, PL, SK 

Source: OECD 

Graph 2.2: Mandatory teaching hours of 
teachers 

Source: Eurydice 

The  number  of  tertiary  graduates  in 
Hungary  falls  short  of  the  growing 
demand  in  the  country  for  highly  skilled 
workers.  The  number  of  entrants  to  tertiary 
education  has  been  shrinking  over  the  past 
decade,  reflecting  demographic  trends,  poor 
school  outcomes  and  the  reduction  of  state-
funded places (see Annex 13). The number of 

9 

applicants  to  higher  education  fell  from  102 
thousand in 2011 to 69 thousand in 2021 and 
admissions decreased from 67 thousand to 51 
thousand  over  this  period.  Since  2022  all 
workers  below  the  age  of  25  have  been 
exempt  from  personal  income  tax,  a  measure 
which might  increase  employment  but  further 
reduce  the  pool  of  applicants  to  tertiary 
education.  More  than  a  third  of  bachelor’s 
degree  students  do  not  graduate,  with  high 
dropout rates especially in IT, engineering and 
science programmes. The share of science and 
engineering  graduates  in  the  population  aged 
25-34 remains below the EU average and has 
even decreased since 2015, limiting Hungary’s 
innovation  capacity.  The  management  and 
in 
financing  of  most  public  universities 
Hungary  have  been  entrusted  to  private  trust 
funds.  Important  decisions  about  university 
policy  are  made  by  the  newly  created  boards 
of trustees, whose members are appointed by 
the  government  for  life  and  the  majority  of 
the  members  have  close 
the 
government (5).  Meanwhile,  university  staff 
instead  of  public 
have  become  private 
employees,  which  reduces  their  protection 
against dismissal. Overall, these changes raise 
concerns  over  academic  freedom  and  the 
quality of education being provided. 

ties  with 

Refocusing health services on 
preventive care would improve 
health outcomes 

is  still 

Despite  improvements, life  expectancy  in 
Hungary 
lower  than  the  EU 
average.  Although  life  expectancy  at  birth 
increased to 75.7 years in 2020, this remains 
almost  5  years  below  the  EU  average. 
Inequalities  in  life  expectancy  by  gender  and 
level  of  education  are  greater  than  in  most 
other EU countries. For example, at the age of 
30,  Hungarian  men  with  the  lowest  level  of 
education  can  expect  to  live  almost  11  years 
less than those with a high level of education.  

(5)  Out of the total 106 members, 16 are linked to 
academia (e.g. former rectors, members of the 
Academy of Sciences), 36 are business managers, and 
54 are members of the government or the governing 
political party. 

60%62%64%66%68%70%72%74%76%78%2015201720192020HungaryCEE30.65.610.615.620.625.6HUELIELUPTLTNLESBGBEITCYROFRATCZDEMTSKSIHRFIPLminimum teaching hours 
  
 
 
  
                                                 
care 

is  a  need  to  focus  more  on 
There 
preventive 
services.  Hungary’s 
mortality  rates  from  preventable  causes  are 
among the highest in the EU,  partly  reflecting 
behavioural  risk  factors  such  as  smoking, 
alcohol-use  disorder  or  unhealthy  diets. 
Preventive  healthcare  has  not  kept  up  with 
needs  over  the  years.  The  share  of  health 
spending allocated to preventive care declined 
between 2010 and 2019, with negative results 
for  the  health  of  Hungarians.  For  example, 
rates  of  cancer  screening  fell  during  this 
period,  contrary  to  the  general  trend  on  most 
other  EU  countries.  In  2019,  five  national 
health  programmes  were  launched,  providing 
additional  funding  for  public  health  and 
the 
preventive  health  services.  However, 
interrupted  screening  activities 
pandemic 
several 
these 
times,  so 
programmes remain to be seen. 

results  of 

the 

Strengthening  primary  care  is  key  to 
improving the effectiveness and equity of 
access to health care. General  practitioners 
(GPs)  formally  act  as  ‘gatekeepers’  to  higher 
levels  of  care 
from  specialist  doctors. 
However,  because  they  can  provide  only  a 
limited  range  of  specialist  treatments,  they 
generate  a  high  number  of  referrals  to 
specialists  and  hospitals.  There  are  large 
disparities 
in 
Hungary,  because  vacant  GP  practices  are 
concentrated  in  poorer  areas.  Recent  reforms 
have  encouraged  GPs  to  cooperate more  with 
each  other,  which  could  make  primary  care 
more  efficient.  The  government  also  plans  to 
specialist 
allow  GPs 
treatments 
the  necessary 
qualifications to do so.  

in  access  to  primary  care 

to  provide  more 

they  have 

if 

The  hospital  network  is  fragmented  and 
has  many  hospital  beds  (see  Annex  14). 
Patients in Hungary spend the longest time in 
hospitals of any country in the EU, because the 
take-up  of  day-surgery  procedures  has 
remained  low  in  comparison  with  the  rest  of 
the EU. An outdated hospital-payment system, 
together  with  low  decision-making  autonomy 
for  healthcare  institutions,  has  repeatedly  led 
to the accumulation of debt by hospitals. This 
has  led  to  additional  unplanned  spending  in 
the budget. To improve the cost-effectiveness 
inpatient  care  services  and  alleviate 
of 

structural  debt  accumulation  by  hospitals  a 
revision of the Diagnosis-Related Group-based 
payment  system  is  underway.  In  2020,  the 
reform of the hospital network also started by 
services  and 
centralising 
administrative functions at county level. 

several 

care 

Hungary  has  taken  significant  measures 
to end gratuity payments and address the 
shortage  of  doctors.  Hungary’s  healthcare 
system  has  experienced  workforce  shortages 
for  many  years,  largely  due  to  low  wages. 
Shortages  of  health  care  professionals  are 
more  pronounced  in  certain  professions,  such 
as  nursing,  and  in  less  populated  and  more 
disadvantaged  areas.  In  2021,  a  new  public-
sector  employment  contract  was  introduced 
for  doctors,  which  provides  them  with  an 
average  200%  pay  rise  in  2021-2023.  In 
return,  they  are  explicitly  prohibited  from 
accepting  informal  gratuity  payments,  and 
they  can  only 
jobs  with 
special    permission  either  in  private  health 
care or in the public sector.  

take  second 

Labour market institutions and the 
social safety net could better 
support fairness and growth 

Hungary’s  labour  market  is  in  a  good 
shape  overall,  but  significant  challenges 
remain.  These  challenges  include  addressing 
the low employment rate of women with small 
children  and  of  early  retirement  age,  and  of 
disadvantaged  groups.  Mothers  with  young 
children  tend  to  stay  out  of  work  for  a  long 
time,  partly  due  to  the  scarcity  of  childcare 
places.  In  2019,  only  17%  of  children  below 
the age of 3 attended formal childcare, which 
is  less  than  half  of  the  EU  average (6).  The 
number  of  childcare  places 
is  gradually 
increasing  thanks  to  dedicated  programmes, 
staff 
institutions  also 
but 

these 

face 

(6)  This indicator decreased to 10.5% in 2020. However, 

this change might be a temporary consequence of the 
COVID-19 pandemic, which forced many childcare 
institutions to close temporarily, and might have also 
led parents to keep children at home out of caution. 
National data for 2021 show a recovery in childcare 
enrolment, above the 2019 level. 

10 

 
                                                 
in 

and 

room 

is  significant 

in  Hungary’s 
rural 

to 
shortages.  There 
increase  the  employment  rate  of  certain 
disadvantaged groups, such as the low-skilled, 
long-term  unemployed,  people  with 
the 
is 
disabilities,  and  Roma. 
Joblessness 
less  developed 
concentrated 
regions 
These 
areas. 
disadvantaged  groups  could  be  better  helped 
by  equipping  them  with  skills  and  actively 
helping  them  to  find  jobs.  Assistance  during 
the  job  search  is  limited in  Hungary,  and  only 
half  of  the  registered  unemployed  receive 
of 
financial 
unemployment benefits is among the shortest 
in  the  EU  at  only  3  months,  while  people 
registered as unemployed need on average 16 
months  to  find  a  job.  Paying  unemployment 
benefits  for  a  longer  time  would  allow  these 
people to improve their skills and look for jobs 
that are more suited to their skills and where 
they  could  thus  work  more  productively.  By 
tackling 
these  challenges,  Hungary  could 
contribute  to  reaching  the  2030  EU  headline 
target on employment. 

benefits. 

duration 

The 

still  unable 

The  risk  of  poverty  has  decreased 
markedly  in  Hungary,  but  many  people 
to  afford  basic 
are 
necessities.  Material  and  social  deprivation 
rates in Hungary remain among the highest in 
the  EU,  especially  for  children.  Poverty  and 
social  exclusion  is  concentrated  in  specific 
groups and territories. Based on national data, 
poverty  rates  are  3-4  times  higher  for  Roma, 
due  in  particular  to  regional  disparities,  and 
their more limited access to the labour market 
and quality public services.  

the  at-risk-of-poverty  threshold 

Over  the  last  decade,  the  social  safety 
net has weakened for Hungarian families 
without  stable  employment.  Although  the 
median income of poor households was 16.7% 
in 
below 
2017, this “poverty gap” widened to 27.9% in 
2020 (7).  The  tax  system  disproportionately 
burdens  lower-paid  workers  through  a  high 
high 
tax 
marginal 
consumption  taxes.  Low-income  families  are 
also less likely to benefit from the income tax 

income 

rate 

and 

this  support 

allowance  after  their  children.  The  major 
sources of income for low-income households 
include  the  salaries  paid  in  the  public  works 
scheme, the minimum income benefit and the 
family  allowance.  These  major  sources  of 
income have not kept up with the cost of living 
in  the  last  decade.  Gaps  in  social  protection 
remain for unemployed people and workers in 
non-standard forms of employment. Regulated 
prices  for  residential  energy  have  remained 
unchanged  since  2014,  thus  partly  shielding 
households  from  recent  commodity  price 
is  not 
increases.  However, 
targeted  towards  the  poor,  and  it  does  not 
help  those,  mainly  rural  households  with  low 
income who heat their homes with solid fuels. 
Every  year,  Hungarian  municipalities  hand  out 
some  free  firewood  or  brown  coal  to  around 
180 thousand households. Rising house prices 
pose further challenge to low-income families. 
They  have  difficulty  accessing  public  housing 
support  schemes,  because 
require 
applicants  to  have  a  regular  work  history  and 
no  unpaid  public  dues  such  as  utility  bills. 
Meanwhile,  social  housing  has  become  scarce 
and  has  often  run-down.  Tackling  these 
challenges is key for Hungary to contribute to 
reaching  the  2030  EU  headline  target  on 
poverty reduction. 

these 

Productivity growth in Hungary 
would benefit from more 
competitive markets 

a 

firms 

Hungarian  companies  are  generally  less 
productive  than  the  EU  average,  with 
particular 
at 
smaller 
is  partly  because 
disadvantage.  This 
Hungarian  businesses  are 
to 
innovate or to make use of digital technologies 
than  their  European  peers.  Only  a  third  of 
small  and  medium-sized  enterprises  use  at 
least three digital technologies, compared with 
a 55% average for the EU (8). The adoption of 
advanced  digital  technologies  such  as  big 
cloud 
data, 

intelligence 

artificial 

likely 

less 

and 

(7)  The threshold is set at 60% of the national median 
income. Anyone with income below this level is 
considered to be at risk of poverty.  

(8)  The Eurostat survey on ICT usage and eCommerce in 

Enterprises lists 12 digital technologies, from basic ones 
such as having a website, to advanced ones such as 
cloud computing. See also https://bit.ly/36vfhFw  

11 

 
                                                 
                                                 
computing  is  particularly  low.  The  cooperation 
between  academia  and  business  has  not 
improved  over  the  years  and  remains  limited 
to big firms.  

to 

growth, 

especially 

competition 

hinder 
Barriers 
productivity 
in 
services.  Economic  research  using  company-
level  data  shows  that  Hungary’s  productivity 
slowdown in the 2010s was largely due to the 
slower reallocation of resources towards more 
efficient firms (9). The decreasing dynamism of 
the  service  sector  is  also  reflected  in  the 
falling  number  of  newly  created  companies. 
Competition  in  the  Hungarian  economy  is 
hampered  in  several  ways:  by  deterring  the 
entry  of  new  competitors,  by  obstructing  the 
growth  of  more  productive  firms,  and  by 
keeping  the  least  efficient  companies  in  the 
market for too long. 

Restrictions  on  many  occupations  can 
discourage  would-be 
entrepreneurs. 
Special  permits  or  qualifications  are  required 
to  practice  around  400  occupations 
in 
Hungary.  This  is  the  one  of  the  highest 
numbers  in  the  EU  even  though  several 
restrictions have already been eased in recent 
years.  These  requirements  often  serve  the 
for  example  by  setting 
public 
interest, 
minimum  quality  or 
standards. 
However, they  also  exist  for  occupations  such 
as  waiters  or  property  managers,  where  the 
need  for  such  standards  is  less  obvious.  For 
other  occupations, 
cooks  or 
confectioners,  safety  standards  already  apply 
to  their  products  or  workplace,  making  the 
qualification 
redundant. 
requirements 
Excessive  restrictions  might  harm  productivity 
by  hindering  the  entry  and  growth  of  more 
efficient  businesses  and  by  slowing  down  the 
flow of workers across sectors. 

such  as 

safety 

Regulations  and  taxes  might  prevent 
businesses  from  growing,  especially  in 
retail and utilities. The construction of retail 
establishments  above  400 m2  is  prohibited in 
Hungary,  but  exemptions  can  be  given  by  the 
authorities.  The  criteria  for  these  exemptions 

(9)  Muraközy, B., Bisztray, M. and Reizer, B. (2019). 

’Productivity differences in Hungary and mechanisms of 
TFP growth slowdown’. Available at 
https://bit.ly/3tAr265  

are  not  transparent  and  there  is  no  scope  for 
their  judicial  review.  Some  sectoral  taxes  can 
also  discourage  the  growth  of  firms.  For 
example, the tax on the retail sector, that was 
introduced in 2020, disproportionately burdens 
larger companies. Both the regulation on shop 
floor  area  and  the  retail  tax  can  hinder  the 
growth  of  more  efficient  retailers.  The  utility 
tax  has  been  levied  since 2013  on  the  length 
of  the  physical  network  owned  by  utility 
companies. This too can discourage firms from 
investing.  Since  2012,  telecom  companies 
have  also  been  burdened  by  a  tax  on  phone 
calls  and  text  messages,  which  contributes  to 
the  high  price  of  mobile  tariff  bundles  in 
comparison with the rest of the EU. 

to 

the 

are 

not 

laid 

exemptions 

interventions 

business 
in 
State 
transactions 
frequently 
in  Hungary 
disregard their effect on competition. The 
criterion  of  public  interest  can  play  a  role  in 
merger  assessment  in  many  Member  States. 
However,  Hungarian  rules  are  unique 
in 
exempt 
government 
allowing 
transactions from merger control so that such 
an  examination  never 
takes  place.  This 
exemption  deprives  policymakers  and  the 
the  economic 
public  from  understanding 
implications of these decisions. The criteria for 
these 
out 
transparently,  and  no  formal  procedure  exists 
to  contest  them.  There  have  been  more  than 
30  such  interventions  since  2014.  These  may 
have  affected  competition  in  various  sectors 
such  as  energy  utilities,  banking,  textbook 
publishing,  fertility  clinics,  the  cash-in-transit 
market, the tobacco trade, telecommunications 
and the media. Many of these are sectors that 
are  already  not  characterised  by  vibrant 
state 
other 
competition. 
intervention  hampers  competition  directly. 
These  other  sectors  include  the  training  of 
driving  examiners,  waste  management  and 
collection and mobile payments. The provision 
of  several  services  in  Hungary  is  entrusted  to 
state-owned  or  private  firms,  specifically 
created  for  these  purposes,  which  operate 
without competition.   

sectors, 

In 

Slow  and  costly  insolvency  procedures 
might  hinder  the  restructuring  of  failing 
businesses.  The  OECD  ranked  the  Hungarian 
the  most 
regime  as  among 
insolvency 

12 

 
                                                 
stringent  in  the  OECD,  especially  due  to  the 
length and cost of insolvency procedures. This 
might  also  explain  why  the  share  of  non-
performing  loans  in  Hungary’s  banking  sector 
the  EU  average.  Failed 
remains  above 
entrepreneurs  need  to  wait  for  up  to  7  years 
to  be  discharged  from  their  pre-bankruptcy 
debt, which makes it difficult for them to start 
again.  Consequently,  surveys  show  that  the 
fear  of  failure  is  a  significant  barrier  to 
entrepreneurship.  On  the  positive  side,  the 
reform  of  the 
insolvency  framework  has 
already  started.  For  example,  since  2020  a 
simple  majority  of  creditors  is  sufficient  to 
approve  a  rescue  plan  for  a  company  instead 
of 
required  67%.  The 
procedures  were  also  simplified  and  digital 
communication  channels  were  allowed.  The 
European Commission and the European Bank 
for  Reconstruction  and  Development  have 
provided  technical  support  on  this  topic  since 
2019,  and  the  Ministry  of  Justice  already 
prepared a reform concept, which is yet to be 
approved by the government. 

the  previously 

in 

Hungary’s  procurement  market  remains 
vulnerable  to  anti-competitive  practices 
and  corruption.  The  percentage  of  public 
contracts  awarded  in  procedures  where  there 
was just one bidder stagnated at around 40% 
in  2018-2020,  which  was  one  of  the  highest 
the  EU.  The  authorities 
percentages 
improved their supervision of the regularity of 
public procurement in response to the findings 
of  the  European  Commission’s  successive 
audits  in  the  field  of  EU  funds  management. 
These  audits  carried  out  in  2014,  2015  and 
2017  identified  serious,  systemic  deficiencies 
and  irregularities,  in  particular  in  the  use  of 
framework  agreements.  Whether  all  of  the 
previously  identified  deficiencies  have  been 
fully addressed remains to be seen in practice. 
In  2021,  new  risks  also  emerged  with  the 
apparent  exclusion  of  ‘public  interest  trusts’, 
and  the  universities  managed  by  them,  from 
public-procurement  rules.  In  February  2021, 
the government set itself an ambitious target 
the  percentage  of  public 
of 
procurement procedures with only a single bid 
to  less  than  15%,  although  without  a  fixed 
timeline.  The  government  also  committed  to 
developing  a  comprehensive  performance-
measurement  methodology  and  to  exploring 
measures to address some of the problems in 

reducing 

the  public-procurement  sector,  including  by 
introducing  special  measures  for  sectors  and 
contracting  authorities  most  affected  by 
single-bid  procurements  in  order  to  improve 
competition.  

Stronger institutions could support 
business dynamism in Hungary 

the  Hungarian 
Several  elements  of 
business  environment  have  improved  in 
the  last  decade.  Hungary  has  maintained 
macroeconomic  stability  in  this  period,  and 
companies  have  gained  better  access  to 
financing.  Hungarian  companies  can  also 
benefit  from  the  lowest  corporate  tax  rate  in 
the  EU  and 
the  government  provides 
significant  support  for  companies’  investment 
projects.  The  tax  burden  on  labour  decreased 
significantly  and  the  employment  protection 
regulation  allowed  firms  to  manage  their 
staffing levels more flexibly. Digitalisation has 
also  made  tax  administration  more  efficient, 
although  there  is  room  for  improvement  in 
other  areas  of  public  administration,  for 
example by providing more services online and 
improving the user experience. These features 
made  Hungary  an  attractive  location  for  the 
cost-sensitive  production  processes  of  global 
value chains (see also Annex 10). 

the 

initiatives 

Hungary’s  tax  system  is  favourable  for 
companies,  but  it  might  also  facilitate 
aggressive tax planning. Even if Hungary is 
recent  European  and 
implementing 
internationally  agreed 
to  curb 
aggressive  tax  planning,  companies  may  still 
exploit  the  tax  system  to  avoid  paying  their 
fair share of taxes in the EU. Hungary is one of 
only two Member States that do not apply any 
withholding tax on royalty, dividend or interest 
payments leaving the EU. Royalty and interest 
payments to non-EU countries are not taxable 
in Hungary, even though they can be deducted 
from  a  company’s  tax  base,  albeit  with 
limitations. The risk of aggressive tax planning 
is  also  visible  in  the  high  and  rising  stock  of 
from  offshore 
investment 
foreign  direct 
financial  centres.  In  2020,  these  amounted  to 
30%  of  Hungary’s  GDP,  or  nearly  15%  of  all 
foreign  investment  in  Hungary,  which  are 

13 

 
among  the  highest  levels  in  the  EU.  The 
outflows  of  royalty,  interest  and  dividend 
payments  to  offshore  financial  centres  are 
also well above the EU average.   

in 

over 

tasks 

remain 

Challenges 
the  area  of 
corruption and judicial independence.  The 
quality  of  institutions  matters  for  economic 
development,  especially  for  a  country  like 
Hungary,  which  needs  to  boost  productivity 
and  move  its  growth  model  from  simple 
assembly 
to  higher  value-added 
activities  within  global  value  chains.  The 
European Commission’s 2021 report on rule of 
law  found  weaknesses  in  Hungary  related  to 
the  fight  against  corruption  and 
judicial 
judicial 
Concerns 
independence. 
independence  are  centred  on  the  balance  of 
powers between the President of the National 
Office  for  the  Judiciary  and  the  National 
the 
Judicial  Council, 
Supreme  Court,  the  role  of  the  Constitutional 
Court  and  the  transparency  of  the  case 
allocation  scheme.  In  December  2021,  the 
government  postponed  the  implementation  of 
most  measures  in  its  anti-corruption  strategy 
for  2020-22.  Had  they  been  implemented, 
these  measures  would  have  helped  to  more 
effectively  detect  and  prosecute  of  corruption 
state-owned 
in  public 
institutions  and 
information, 
enterprises.  Access  to  public 
independent 
the 
which 
oversight  of  decision-making  and  anti-
corruption 
framework,  was  made  more 
difficult by special rules introduced by Hungary 
during the state of danger (10) (11).  

functioning  of 

is  essential 

the 

for 

the 

Low  transparency  of  the  policy-making 
process  may  affect 
business 
environment.  Hungary  scores  low  among  EU 
Member States on social dialogue, stakeholder 
engagement 
law, 
consultation  with  civil  society,  and  the  use  of 
evidence-based  instruments  to  assess  the 

in  developing  primary 

impact of a draft legislation. National rules on 
the  obligatory  public  consultation  of  draft 
legal acts and their impact assessments have 
been  systematically  disregarded.  The  number 
consultation  has 
to 
of 
significantly  declined  in  recent  years  and  was 
close to zero in the last three years. 

subject 

laws 

Ambitious policies could support 
Hungary’s green transition and 
reduce dependence on Russian 
fossil fuels 

Hungary’s energy sector depends strongly 
on Russia for fossil fuels and investment. 
Oil  and  gas  account  for 
two-thirds  of 
Hungary’s  energy  mix.  Hungary’s  only  oil 
refinery mainly uses oil from Russia, but some 
30%  of  its  feedstock  comes  from  alternative 
sources,  mainly 
the  Omisalj  oil 
through 
terminal  in  Croatia.  For  gas,  Russian  imports 
account  for  as  much  as  three  quarters  of 
domestic  consumption,  with  the  rest  covered 
by domestic production (12). The nuclear energy 
sector, which accounted for 46% of electricity 
generation  in  2020,  also  depends  on  Russian 
technology, nuclear fuel and funding.  

Regional gas interconnections could allow 
limited  diversification  of  imports.  Due  to 
its  geographical  location  Hungary  relies  on 
Russian gas import and has no direct access to 
liquefied  natural  gas.  Therefore, 
overseas 
Hungary  maintains  a 
large  gas  storage 
capacity  of  6.5  billion  cubic  metres  (bcm)  or 
60%  of  annual  consumption.    However,  these 
were 
largely  exhausted  by  spring  2022. 
Hungary  signed  a  long-term  contract  in  2021 
to  continue  purchasing  Russian  gas.  Existing 
pipelines  to  Hungary’s  neighbours  create  only 

(10)  The state of danger due to the pandemic has been in 
place since 11 March 2020, with an interruption 
between July and November 2020. It is set to expire 1 
June 2022.   

(11)  The Commission sent a notification letter to Hungary on 
27 April pursuant to Article 6(1) of Regulation (EU, 
Euratom) 2020/2092 of the European Parliament and 
of the Council, of 16 December 2020, on a general 
regime of conditionality for the protection of the Union 
budget. 

(12)  Eurostat. In 2020, Hungary’s crude oil and natural gas 
imports from Russia amounted to 61% and 95% of 
total imports of crude oil and natural gas respectively. 
However, Hungary was a significant exporter of refined 
oil products and natural gas to neighbouring countries. 
Accounting for these energy exports, Hungary’s import 
dependency on Russia was 17% of gross inland 
consumption for oil and 76% for gas. These estimates 
assume that domestic production and imports from 
third countries are used to cover domestic consumption. 

14 

 
                                                 
                                                 
limited  possibility 
sources.  

to 

import  from  other 

Graph 2.3: Share of renewable energy in 
Hungary relative to the EU 

by 

the 

enough 

then  by 

There  is  room  to  increase  the  share  of 
renewable  energy.  Hungary’s  share  of 
renewable  sources 
in  gross  final  energy 
consumption is among the lowest in the EU at 
13.9%  and  the  national  energy  and  climate 
plan  aims  to  increase  this  to  only  21%  by 
2030.  This  objective  was  not  considered 
ambitious 
European 
Commission, but the government now plans to 
raise  it  to  23-25%.  Currently  the  greatest 
share  of  electricity  in  Hungary  is  generated 
from nuclear sources, followed by fossil fuels, 
and 
renewable  energy  sources. 
Hungary aims to increase the share of carbon-
free  sources  in  electricity  generation  from 
61%  in  2020  to  90%  by 2030.  In  addition  to 
nuclear  energy,  Hungary  intends  to  rely  more 
on  solar  energy  while  the  potential  of  wind 
and  geothermal  energy  remains  underutilised 
also  due 
to  administrative  barriers.  For 
example,  new  wind  turbines  are  not  allowed 
within 12 km of populated areas, which makes 
it  practically 
them 
anywhere in Hungary. Hungary’s electricity grid 
to 
requires 
investment 
increase  of  renewable 
accommodate 
In  addition,  permitting 
energy 
that  use 
procedures  for  building  plants 
be 
energy 
renewable 
simplified. (13) 

additional 
the 

impossible 

sources. 

sources 

install 

could 

to 

(13)  For further details, see: Eclareon (2022): Barriers and 

Best Practices for Wind and Solar Electricity in the EU27 
and UK, Final Report, March 2022. Available at 
https://bit.ly/3wHflMT  

15 

Source: Eurostat 

There remains great potential for energy 
saving  in  Hungary  by  renovating  the 
country’s  building  stock.  Hungary  did  not 
reach  its  2020  targets  for  reducing  primary 
and  final  energy  consumption.  There 
is 
especially  large  room  for  improvement  in  the 
energy  efficiency  of  residential  housing.  The 
renovation  of  housing  would  also  meet  social 
needs,  as  nearly  a  quarter  of  the  population 
lives  in  dwellings  that  suffer  from  leaking 
roofs,  dampness  or  rot.  Existing  financial 
incentives  for  energy  efficiency  upgrades  and 
greener heating systems appear insufficient to 
trigger  more  widespread  take-up  of  these 
upgrades  by  Hungarian  home  owners.  New 
dwellings  can  benefit  from  a  green  mortgage 
programme  of  the  central  bank  which  was 
extended  in  spring  2022  to  accommodate 
renovations  are 
strong  demand.  Home 
supported by a temporary subsidy programme 
until  the  end  of  2022,  which  finances  up  to 
half  of  the  cost  of  refurbishment.  However, 
this  scheme  does  not  require  households  to 
achieve  any  energy  saving  and  excludes  in 
practice  the  most  vulnerable  families,  who 
cannot  support  even  half  of  the  costs  of  a 
typical renovation. Moreover, the uniformly low 
level of regulated energy prices, regardless of 
household  income  or  consumption  level,  does 
not  create  incentives  for  energy  saving (14). 

(14)  Evidence for the significant reaction of residential gas 
consumption to prices in Hungary is presented in 

1012141618202224% EU27Hungary 
                                                 
  
                                                 
harms  to  water  quantity,  water  quality  and 
biodiversity. This is because climate change is 
expected to reduce flow levels in the country’s 
river.  In  contrast,  Hungary  pays  less  attention 
to water retention, restoring natural hydrology, 
and  adapting  agricultural  practices.  Close  to 
one  quarter  of  Hungary’s  territory  is  exposed 
to  floods,  and 
risk 
management  plan  does  not  sufficiently 
address this issue. 

the  country’s  flood 

the 

stricter 
Meanwhile, 
environmental standards for new housing was 
postponed by 18 months, until 1 July 2022. 

application 

of 

Transport  could  also  contribute  to  fossil 
fuel  savings.  Over  the 
last  five  years, 
greenhouse  gas  emissions  in  transport  have 
increased  strongly  and  the  sector  is  rapidly 
becoming  the  largest  emitting  one.  The  high 
level  of  emissions  is  partly  due  to  road 
congestion,  in  particular  in  cities.  The  take  up 
of  electric  vehicles  and  the  number  of 
charging points are below the EU average (see 
more details in Annex 5). 

Progress towards a circular economy is at 
an early stage. Hungary uses more materials 
to  produce  a  unit  of  income  than  most  other 
EU  countries.  Although  waste  generation  is 
modest  and  commensurate  with  Hungary’s 
income  level,  only  33%  of  municipal  waste  is 
recycled.  This  is  considerably  less  than  the 
2025  target  of  55%.  Conversely,  50%  of  all 
municipal  waste  ends  up  in  landfills.  Waste 
management  was 
the 
government  in  2016.  The  changes  limited 
competition  in  the  sector,  which  had  a  side 
effect  of  reducing  efficiency  and  recycling 
rates.  In  2021,  a  new  legislation  limited 
competition further by creating a monopolistic 
market.  Hungary  has  recently  started  to 
develop  a  national  circular  economy  strategy 
and a related action plan.  

reorganised  by 

Water  management  remains  a  concern. 
Hungary’s water-supply and sanitation system 
are  still  not  fully  compliant  with  the  Drinking 
Water  Directive,  and  water  affordability 
remains an issue for the poor. A large share of 
the  water  supply  network  is  in  poor  state. 
Because  of  leaks,  a  quarter  of  the  water 
entering  the  system  generates  no  revenues. 
Regulated 
the 
do 
maintenance  costs  of  many  water  and 
wastewater  companies.  The  utility  tax,  levied 
on companies’ pipelines, poses another barrier 
to  investment.  Hungary’s  water  bodies  are 
human 
pressures 
exposed 
intervention.  Plans  to  substantially  expand 
crop irrigation in Hungary raise concerns about 

tariffs 

cover 

from 

not 

to 

Századvég (2014): A háztartási energiahordozó 
árváltozások társadalmi hatásvizsgálata (in Hungarian). 
Available at: https://bit.ly/3NxY27d 

16 

 
                                                                        
 
KEY FINDINGS 
KEY FINDINGS 

Hungary  would  benefit  from measures  in 
the following areas:   

  Strengthening judicial independence. 

  Preserving  macroeconomic  stability  by 
managing  the  risks  of  high  energy  prices 
and rising financing costs. 

  Improving  the  quality  and  transparency  of 
the  decision-making  process 
through 
effective  social  dialogue  and  engagement 
through 
with  other  stakeholders  and 
regular, appropriate impact assessments. 

  Simplifying 

the 

tax 
it  against 

system,  while 
risk  of 

the 

strengthening 
aggressive tax planning. 

  Reducing overall reliance on fossil fuels by 
accelerating the deployment of renewables, 
in particular by streamlining the permitting 
procedures  and  upgrading  the  electricity 
infrastructure.  Diversify  imports  of  fossil 
fuels by strengthening interconnection with 
other countries. 

  Reducing the dependency on fossil fuels in 
buildings  and  transport  by  stepping  up 
efforts  on  energy  efficiency  measures  for 
all,  especially  in  residential  houses  and  on 
the electrification of transport. 

  Promoting 

reform  and 

investment  on 
sustainable  water  and  waste  management 
and the circularity of the economy.  

  Reforming  the  pension  system  to  improve 
long-term  sustainability  of  public 
in 
income 

the 
finances,  while  preserving  adequacy 
particular 
inequalities. 

through  addressing 

  More  integration  of  the  most  vulnerable 
groups  in  the  labour  market,  in  particular 
through  upskilling,  and  extending 
the 
duration of unemployment benefits. 

  Better  adequacy  of  social  assistance  and 
equal  access  to  essential  services  and 
adequate housing for all. 

  Improved  education  outcomes  and  higher 
level of participation in quality mainstream 
in 
education  by  disadvantaged  groups, 
particular Roma. 

  Better  access  to  quality  preventive  and 

primary care services.  

  Reducing large territorial differences within 
Hungary,  with  particular  attention 
to 
disparities  within 
significant 
regions. 

internal 

  Increasing  investment  on  the  digitalisation 
of  businesses,  green  and  digital  skills,  and 
research and innovation.  

  More 

regulatory 

and 
increased competition in services, including 
in public procurement. 

predictability 

  Reinforcing  the  anti-corruption  framework, 
including by improving prosecutorial efforts 
and access to public information. 

17 

 
 
 
 
ANNEXES 

 
 
 
LIST OF ANNEXES 

Cross-cutting progress indicators 

Annex 1: Sustainable Development Goals 

Annex 2: Recovery and Resilience Plan - implementation 

Annex 3: Other EU instruments for recovery and growth 

Annex 4: Progress in the implementation of country-specific recommendations 

Environmental sustainability 

Annex 5: Green Deal 

Annex 6: Employment and social impact of the green transition 

Productivity 

Annex 7: Resource efficiency and productivity 

Annex 8: Digital transition 

Annex 9: Innovation 

Annex 10: Industry and single market 

Annex 11: Public administration 

Fairness 

Annex 12: Employment, skills and social policy challenges in light of the European Pillar of Social Rights 

Annex 13: Education and skills 

Annex 14: Health and health systems 

Annex 15: Economic and social performance at regional level 

Macroeconomic stability 

Annex 16: Key financial sector developments 

Annex 17: Taxation 

Annex 18: Key economic and financial indicators 

Annex 19: Debt sustainability analysis 

LIST OF TABLES 

Table A4.1: 
Table A5.1: 
Table A7.1: 
Table A8.1: 
Table A9.1: 
Table A10.1: 
Table A11.1: 

Summary table on 2019, 2020 and 2021 CSRs 
Indicators underpinning progress on the-European Green Deal from a macroeconomic perspective 
Selected resource efficiency indicators 
Key Digital Economy and Society Index indicators 
Key research, development and innovation indicators 
Overview of Industry and Single Market in Hungary 
Public Administration Indicators - Hungary 

21 

23 

23 

25 

26 

29 

32 

32 

35 

37 

37 

39 

41 

43 

46 

48 

48 

50 

53 

55 

58 

58 

60 

62 

63 

30 
34 
38 
39 
42 
45 
47 

 
 
 
Table A12.1: 
Table A13.1: 
Table A14.1: 
Table A15.1: 
Table A16.1: 
Table A17.1: 
Table A18.1: 
Table A19.1: 
Table A19.2: 

Social Scoreboard for Hungary 
EU-level targets and other contextual indicators under the European Education Area strategic framework 
Key health indicators 
Hungary, selected indicators at regional level 
Financial soundness indicators 
Indicators on taxation (**) 
Key economic and financial indicators 
Debt sustainability analysis for Hungary 
Heat map of fiscal sustainability risks for Hungary 

LIST OF GRAPHS 

Graph A1.1: 

Progress towards SDGs in Hungary in the last five years 

Graph A3.1: 

2014-2020 European and Structural Investment Funds - total budget by fund 

Graph A3.2: 

Cohesion policy contribution to the SDGs (EUR billion) 

Graph A4.1: 

Hungary's progress on the 2019-2020 CSRs (2022 European Semester cycle) 

Graph A5.1: 

Energy, Share in energy mix (solids, oil, gas, nuclear, renewables(1)) 

Graph A5.2: 

Biodiversity, Terrestrial protected areas and organic farming 

Graph A5.3: 

Mobility, Share of zero emission vehicles (% of new registrations) 

Graph A6.1: 

Fair green transition challenges 

Graph A6.2: 

Energy poverty by income decile 

Graph A7.1: 

Municipal waste treatment 

Graph A7.2: 

Economic importance and expansion of the circular economy - employment and value added in the circular economy 

Graph A11.1: 

Open government data maturity 

Graph A11.2: 

Performance on evidence-based policy making indicators 

Graph A13.1: 

Mean science performance 

Graph A14.1: 

Life expectancy at birth, years 

Graph A14.2: 

Projected increase in public expenditure on health care over 2019-2070 (reference scenario) 

Graph A15.1: 

GDP per capita (2010) and GDP growth (2010-2019) in Hungary 

Graph A15.2: 

Labour productivity, EU-27, Hungary´s NUTS 2 regions, 2000-2019 

Graph A15.3: 

EU Regional Competitiveness Index of Hungary's less developed regions 

Graph A15.4: 

Territories most affected by climate transition in Hungary 

Graph A17.1: 

Indicators on tax wedge (**) 

48 
50 
54 
55 
59 
60 
62 
63 
64 

24 

26 

27 

29 

32 

33 

33 

35 

35 

37 

37 

46 

46 

51 

53 

53 

55 

55 

56 

56 

61 

22 

 
 
 
 
CROSS-CUTTING PROGRESS INDICATORS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 

the 

This  Annex  assesses  Hungary’s  progress 
towards  the  Sustainable  Development  Goals 
(SDGs)  along 
four  dimensions  of 
competitive  sustainability.  The  17  SDGs  and 
their related indicators provide a policy framework 
under  the  UN’s  2030  Agenda  for  Sustainable 
Development.  The  aim  is  to  end  all  forms  of 
poverty,  fight 
inequalities  and  tackle  climate 
change,  while  ensuring  that  no  one is  left  behind. 
The  EU  and  its  Member  States  are  committed  to 
this  historic  global  framework  agreement  and  to 
playing  an  active  role  in  maximising  progress  on 
the SDGs. The graph below is based on the EU SDG 
indicator  set  developed  to  monitor  progress  on 
SDGs in an EU context. 

Although    Hungary  is  improving  on  several 
SDG 
indicators  related  to  environmental 
sustainability  (SDGs  2,  6,  11,  12  and  13),  it 
still needs to progress on others (SDGs 7 and 
9).  The  current  status  of  all  these  indicators 
remains  below  the  EU  average.  Notably,  the 
recycling  rate  of  municipal  waste  only  slightly 
increased from 32.2% in 2015 to 33.0% in 2020, 
while    ‘circular  material  use  rate’  improved  from 
5.8%  in  2014  to  8.7%  in  2020.  However  both 
measures  are  still  below  the  EU  average  (47.8% 
for  municipal  recycling  and  12.8%  for  circular 
material use). Although Hungary`s ‘primary energy 
consumption’  is  below  the  EU  average,  the  share 
of  renewable  energy  in total  energy  consumption, 
which decreased from 14.5% in 2015 to 13.9% in 
2020,  is  far  below  the  EU  average  (22.09%  in 
2020).  

Energy  productivity 
in  the  country  only 
slightly  increased  between  2015  and  2020, 
leading  to  an  increased  gap  with  the  EU 
average  (from  4.4  EUR/kgoe  in  2015  to  4.7 
EUR/kgoe 
in  2020,  compared  to  an  EU 
improvement  from  7.8  EUR/kgoe  to  8.6 
EUR/kgoe).  The  share  of  sustainable  transport 
modes  has  declined  in  recent  years,  but  still 
remains  above  the  EU  average  (public  transport 
kilometres  travelled  as  a  share  of  all  transport 
kilometres  fell  to  28.4%  in  2020,  above  the  EU 
average of 17.2%). 

In  the  area  of  fairness,  Hungary  performs 
very  well  in  some  SDG  indicators  related  to 
growth,  employment  and  poverty  reduction 
(SDGs  1  and  8).  There  has  also  been  some 

23 

improvement in health indicators (SDG 3), but the 
country  needs  to  catch  up  in  a  number  of  areas 
related to education and gender equality (SDGs 4, 
5  and  10).  Improvement  has  been  particularly 
strong  in  the  employment  rate  (from  73.7%  in 
2016 to 78.8% in 2021), the severe material and 
social  deprivation  rate  (from  24.1%  in  2015  to 
the  severe  housing-
10.7% 
deprivation  rate  (from  15.5%  in  2015  to  7.6%  in 
2020).  But  despite  these  improvements,  Hungary 
still  scores    significantly  below  than  the  EU 
average  for  the  severe  material  and  social 
deprivation  rate  (where  the  EU  average  is  only 
6.8%)  and  the  severe  housing-deprivation  rate 
(where  the  EU  average  is  4.0%).  Hungary  also 
performs below the EU average in the area of  

in  2020)  and 

leaving 

(12.0% 

education (SDG  4),  with  high  and  increasing  rates 
in  Hungary 
of  early  school 
compared  to  9.7%  in  the  EU)  and  low  and 
decreasing tertiary education attainment (32.9% in 
Hungary  against  41.2%  in  the  EU)  in  2021. 
Similarly,  Hungary  performs  below  than  the  EU 
average 
(SDG  5),  with 
worsening  gender  employment  gap  and  gender 
pay  gap,  and  low  participation  of  women  in 
national  parliaments,  governments  and  senior 
management.  

in  gender  equality 

Hungary  performs  well  on  some  of  the  SDG 
indicators  related  to  productivity  (SDGs  8 
and 9), but still needs to catch up on others 
(such  as  SDG  4  on  education,  which  plays  a 
critical  role  in  productivity).  The  share  of 
Hungarian  households  with  high-speed  internet 
connections has moved towards the EU average of 
59.3  %  in  2020  which  represents  significant 
progress  on  this  indicator  since  2015.  48,6%  of 
Hungary`s  households  now  have  high-speed 
internet  access  compared  to  21,5  %  in  2015.. 
Hungary’s  gross  domestic  expenditure  on  R&D  is 
well below the EU average (1.61% of GDP against  
2,32%  in  the  EU)  and  Hungary  has  not  made  
significant  progress  on  this  area  over  time. 
Participation  in  adult  learning  and  strengthening 
digital  skills  remain  a  challenge.  In  Hungary  only 
5.9% of adults participate in learning programmes, 
which  is  far  below  the  EU  average  (10.8%  in 
2021).  Only  49%  of  Hungarians  possess  at  least 
basic digital skills, against an EU average of 54% 
in 2021.  

 
 
 
 
Hungary  performs  well  on  SDG  indicators 
related  to  macroeconomic  stability  (SDG  8), 
and  is improving on other indicators (such as 
SDG  16  on  access  to  justice  and  trust  in 
institutions). Real GDP per capita in Hungary has 
been increasing over time, reaching EUR 13,660  in 
2021 (up from EUR 11,500  in 2016), but it is still 
substantially  below  the  EU  average  (EUR  27,810  
in 2021), and economic convergence with the rest 
of  the  EU  slowing  down.  The  investment  share  of 
GDP has increased since 2015 and it above the EU 
average  (26.8%  in  Hungary  against  22.3%  in  the 
EU  in  2020).  Hungary  also  outperforms  the  EU 
average  on  employment-related  indicators  (SDG 
8).  The  long  term  unemployment  rate  has  fallen 
significantly  since  2015  (from  2.3%  in  2016  to 
1.3% in 2020). However, Hungary is still below the 
EU average - and has a declining performance - on 
access to justice and trust in institutions (SDG 16). 

Graph A1.1: Progress towards SDGs in Hungary in the last five years 

For detailed datasets on the various SDGs see the annual ESTAT report ‘Sustainable development in the European Union’, 
https://ec.europa.eu/eurostat/web/products-statistical-books/-/KS-03-21-096; Extensive country specific data on the short-term 
progress of Member States can be found here: Key findings - Sustainable development indicators - Eurostat (europa.eu). 

Source: Eurostat, latest update of 28 April 2022. Data mainly refer to 2015-2020 and 2016-2021. 

24 

 
 
 
ANNEX 2: RECOVERY AND RESILIENCE PLAN - IMPLEMENTATION 
ANNEX 2: RECOVERY AND RESILIENCE PLAN - IMPLEMENTATION 

The  Recovery  and  Resilience  Facility  (RRF)  is 
the  centrepiece  of  the  European  Union’s 
efforts to support the Union’s recovery from 
the  COVID-19  pandemic  and  strengthen 
resilience  against  future  shocks.  Hungary 
submitted  its  Recovery  and  Resilience  Plan  on  11 
May  2021.  The  plan  amounted  to  €7.17  billion  in 
grants, or 4.9% of Hungary’s GDP in 2019.  

The  Commission  is  continuing  its  assessment  of 
the  Hungarian  plan  and  is  working  constructively 
with  the  Hungarian  authorities  to  ensure it meets 
the  criteria 
in  the  Recovery  and 
Resilience Facility Regulation. 

laid  down 

25 

 
 
 
 
 
ANNEX 3: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 
ANNEX 3: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 

is  the 

The EU’s budget of more than EUR 1.2 trillion  
lever 
investment 
for  2021-2027 
supporting 
implementation  of  EU 
the 
priorities.  Underpinned  by  an  additional  amount 
of about EUR 800 billion through Next Generation 
EU  and 
it 
represents  a  significant  firepower  to  support  the 
recovery and sustainable growth. 

instrument,  the  RRF, 

largest 

its 

Graph A3.1: 2014-2020 European and Structural 
Investment Funds - total budget by fund 

(1) bn EUR in current prices, % of total  

Source: European Commission, Cohesion Open Data  

support 

In  2021-2027,  EU  cohesion  policy  funds (15) 
will 
development 
long-term 
objectives in Hungary by investing EUR 22.79 
billion (16)  including  EUR  261.1  million  from  the 
Just  Transition  Fund  directed  to  alleviate  the 
socio-economic  impacts  of  the  green  transition  in 
the  most  vulnerable  regions.  The  2021-2027 
cohesion policy funds partnership agreements and 
programmes are designed to take into account the 
2019-2020 
recommendations 
and  investment  guidance  provided  under  the 
European  Semester,  ensuring  synergies  and 
complementarities  with  other  EU  funding. 
In 
addition, Hungary will benefit from EUR 8.4 billion 
support for the 2023-27 period from the Common 
social, 
Agricultural 
environmental,  and  economic  sustainability  and 
innovation 
rural  areas, 
contributing  to  the  European  Green  Deal,  and 
ensuring long-term food security. 

in  agriculture  and 

country-specific 

Policy,  which 

supports 

(i) 

energy 

quality 

funding 

infrastructure 

(EUR 3.9 billion); 

in  Hungary  are: 

and 
(iii)  network 

In  2014-2020,  the  European  Structural  and 
Investment Funds (ESIF) for Hungary are set 
to  have  invested  EUR  26.83  billion (17)  from 
the EU budget. The total investment including 
national  financing  will  have  amounted  to 
EUR  31.77  billion  (Graph  3.1),  representing 
around  3.67%  of  Hungarian  GDP  for  2014-2020 
and  49.30%  of  Hungary’s  public  investment (18). 
By  31  December  2021,  123%  of  the  total  was 
allocated  to  specific  projects  and  73%  was 
reported  as  spent,  leaving  EUR  8.45  billion  to  be 
spent  by  the  end  of  2023 (19).  Among  the  eleven 
objectives  the  most  relevant  ones  for  cohesion 
policy 
the 
competitiveness  of  SMEs  (EUR 5.39  billion);  (ii) 
employment 
sustainable 
in 
(EUR 4 billion); 
transport  and 
(iv) 
environmental  protection  and  resource  efficiency 
(EUR  3.7  billion);  (v)  the  low-carbon  economy 
inclusion 
(EUR 3 billion); 
(EUR 2.97 billion);  (vii)  research  and  innovation 
(EUR 2.27  billion);  (viii)  education  and  vocational 
change 
training, 
adaptation  (EUR 1.9 billion);  (x)  efficient  public 
administration, crisis-repair and resilience; and (xi) 
information and communication technology. By the 
end  of  2020,  cohesion  policy  investments  had:  (i) 
supported  29  914  enterprises  in  Hungary  (out  of 
which 4 627 were supported through grants and 5 
683  through  non-grant  aid);  (ii)  directly  helped  to 
jobs;  (iii)  helped  to  set  up 
create  19  653 
broadband  access  in  152  000  households;  (iv) 
contributed to  the  construction  of  158 km  of  new 
roads  and  to  the  reconstruction  of  274 km  of 
improved  the  health  service  for 
railway;  (v) 
7.8 million  people  and  wastewater  treatment  for 
73 000  people.  Overall,  Hungary  allocated 
EUR 1.15  billion  under  the  European  Social  Fund 
(ESF)  to  measures  to  help  people  find  work  or 
training,  involving  over  400 000  participants,  of 
whom over 220 000 found a job. 

(EUR 2 billion); 

climate 

social 

(vi) 

(ix) 

(17)  ESIF includes the cohesion policy funds (ERDF, ESF, CF, 
Interreg) the European Agricultural Fund for Rural 
Development (EAFRD) and European Maritime and Fisheries 
Fund (EMFF). According to the ‘N+3 rule’, the funds 
committed for the years 2014-2020 must be spent by 2023 
at the latest (by 2025 for EAFRD). Data source: Cohesion 
Open Data cut off date 31.12.2021 for ERDF, ESF+, CF, 
Interreg; cut-off date 31.12.2020 for EAFRD and EMFF.  

(15)  European Regional Development Fund (ERDF), European 

Social Fund+ (ESF+), Cohesion Fund (CF), Just Transition Fund 
(JTF), Interreg. 

(16) Current prices, source: Cohesion Open Data  

(18)  Public investment is gross fixed capital formation plus 

capital transfers by the general government. 

(19)  Including REACT-EU. ESIF data on 

https://cohesiondata.ec.europa.eu/countries/HU 

26 

7.0922%5.5218%0.050%13.0041%6.0019%0.110%CFEAFRDEMFFERDFESFYEI 
 
  
 
                                                 
                                                 
 
are 

funds 

policy 

Cohesion 
already 
substantially  contributing  to  the  objectives 
of  the  Sustainable  Development  Goals.  In 
Hungary,  cohesion  policy  funds  are  supporting  11 
of the 17 SDGs with up to 94% of the expenditure 
contributing  to  the  attainment  of  the  goals  under 
these 11 SDGs.  

fund 

another 

under 
REACT-EU, 
NextGenerationEU  provided  EUR  926  million 
of additional funding to 2014-2020 cohesion 
policy  allocations  for  Hungary  to  ensure  a 
balanced recovery, foster convergence and provide 
vital support to regions following the impact of the 
COVID-19 outbreak. REACT-EU provided support in 
Hungary through: (i) three operational programmes 
for  safeguarding  jobs  through  wage  subsidies  in 
the  sectors 
(ii) 
promoting the economic recovery through loans to 
SMEs;  (iii)  improving  the  epidemiological  situation 
through  the  purchase  of  EU-approved  vaccines, 
including for children; and (iv) supporting the green 
transition  through  energy  efficiency  measures, 
green  infrastructure  and  investment  in  renewable 
energy sources.  

impacted  by  the  pandemic; 

to 

enabling  Hungary 

The  Coronavirus  Response 
Investment 
Initiative (20) provided the first EU emergency 
support  to  Hungary  to  help  to  deal  with  the 
COVID-19 pandemic.  It  introduced  extraordinary 
re-allocate 
flexibility 
resources  for  support  to  enterprises  (EUR  208 
million)  contributing  for  instance  to  the  liquidity 
support  to  SMEs  including  via  working  capital 
loans,  support  to  the  food  industry  sector  value 
chains  which  have  been  disrupted  as  a  result  of 
the  crisis,  supporting  short  time  work  schemes 
(ESF)  and  transition  towards  a  greener  economy 
Investment 
(ERDF).  The  Coronavirus  Response 
Initiative  also increased support to companies and 
vulnerable  people  located  in  the  capital  region  of 
Budapest, the region of Hungary most affected by 
the  impact  of  the  COVID-19  crisis  in  2020. 
Hungary also benefited from the temporary 100% 
EU  financing  of  incurred  measures  in  cohesion 
policy,  with  approximately  EUR  797  million  in 
2021 through 100% co-financing. 

Graph A3.2: Cohesion policy contribution to the SDGs (EUR billion) 

Source: European Commission, DG REGIO 

(20)  Re-allocating ESIF resources according to Regulation (EU) 

2020/460 of the European Parliament and of the Council of 
30 March 2020, and Regulation (EU) 2020/558 of the 
European Parliament and of the Council of 23 April 2020. 

27 

0.320.470.620.860.911.311.492.142.356.287.4102468SDG 11 Sustainable cities and communitiesSDG 12 Responsible consumption and productionSDG 3 Good health and well beingSDG 15 Life on landSDG 13 Climate actionSDG 6 Clean water and sanitationSDG 1 No povertySDG 7 Affordable and clean energySDG 4 Quality educationSDG 8 Decent work and economic growthSDG 9 Industry, innovation, infrastructure 
 
 
 
 
 
 
 
 
 
                                                 
  
to 

under 

(SURE) 

support 

received 

Hungary 
the 
European  instrument  for  temporary  support 
in  an 
to  mitigate  unemployment  risks 
emergency 
similar 
finance 
measures to short-time work schemes and as 
an  ancillary,  health-related  measures. The 
Council granted financial assistance under SURE to 
Hungary  in  October  2020  and  top-up  support  in 
January 2022 for a maximum of EUR 651 million, 
which  was  disbursed  by  29  March  2022  SURE  is 
estimated  to  have  supported  approximately  10% 
of workers and 5% of firms for at least one month 
in  2020,  primarily  in  accommodation  and  food 
services,  human  health  and  social  work  activities, 
and  other  service  activities.  Hungary  is  estimated 
to  have  saved  a  total  of  EUR  0.09  billion  on 
interest  payments  as  a  result  of  SURE’s  lower 
interest rates. 

The  Commission  is  engaged  in  providing 
tailor-made  expertise  via  the  Technical 
Support  Instrument  to  support  Hungary 
in 
designing  and 
implementing  growth-enhancing 
reforms.  Since  2018,  Hungary  has  received  EU 
assistance  through  34  technical  support  projects. 
Projects  delivered  in  2021  aimed  at  supporting 
Hungary 
including 
in  a  variety  of  areas, 
sustainable  growth,  fair  taxation,  digitalisation  of 
public  administration,  healthcare,  digital  higher 
education  and  supervision  of  the  financial  sector. 
In particular, the support for improving the quality 
of digital teaching and learning is expected to lead 
to  a  more  competitive  and  attractive  higher 
education system. In 2022, new projects will start 
to support, among other things, piloting individual 
learning  accounts,  the  implementation  of  the  just 
transition.  

Hungary  also  benefits  also  from  other  EU 
programmes,  such  as  the  Connecting  Europe 
Facility,  which  allocated  EU  funding  of  EUR  1,1 
billion  to  specific  projects  on  strategic  transport 
networks,  and  Horizon  2020,  which  allocated  EU 
funding of EUR 371.4 million. 

28 

 
 
ANNEX 4: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
ANNEX 4: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
RECOMMENDATIONS 
RECOMMENDATIONS 

The  Commission  assessed  the  2019-2021 
country-specific  recommendations  (CSRs) (21) 
addressed  to  Hungary  in  the  context  of  the 
European  Semester.  The  assessment  takes  into 
account  the  policy  action  taken  by  Hungary  to 
date (22).  Overall  25%  of  the  CSRs  focusing  on 
structural issues in 2019 and 2020 have recorded 
at  least  “some  progress”,  while  75%  recorded 
“limited” or “no progress” (see Graph A4.1). 

Graph A4.1: Hungary's progress on the 2019-2020 
CSRs (2022 European Semester cycle) 

Source: European Commission 

(21)  2021 CSRs: https://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:32021H0992&from=EN 

2020 CSRs: https://data.consilium.europa.eu/doc/document/ST-

8436-2020-INIT/en/pdf  

2019 CSRs https://data.consilium.europa.eu/doc/document/ST-

10170-2019-REV-2/en/pdf 

(22)  Incl. policy action reported in the National Reform 

Programme. 

29 

No Progress37%Limited Progress…Some Progress…Substantial Progress… 
 
     
 
 
 
 
 
 
 
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A4.1: Summary table on 2019, 2020 and 2021 CSRs 

(Continued on the next page) 

30 

HungaryAssessment in May 20222019 CSR1Not relevant anymoreEnsure compliance with the Council Recommendation of 14 June 2019 with a view to correcting the significant deviation from the adjustment path towards the medium-term budgetary objective.Not relevant anymore2019 CSR 2Limited ProgressContinue the labour market integration of the most vulnerable groups, in particular through upskilling, andLimited Progressimprove the adequacy of social assistance and unemployment benefits.No ProgressImprove education outcomes and increase the participation of disadvantaged groups, in particular Roma in quality mainstream education.No ProgressImprove health outcomes by supporting preventive health measures and strengthening primary healthcare.Limited Progress2019 CSR 3Limited ProgressFocus investment-related economic policy on research and innovation,Limited Progress low-carbon energy, Some Progresstransport infrastructure, and Some Progresswaste management and No Progressenergy and resource efficiency, taking into account regional disparities.Limited ProgressImprove competition in public procurement.Limited Progress2019 CSR4No ProgressReinforce the anti-corruption framework, including by improving prosecutorial efforts and access to public information, and No Progressstrengthen judicial independence.No ProgressImprove the quality and transparency of the decision-making process through effective social dialogue and engagement with other stakeholders and through regular, appropriate impact assessments. No ProgressContinue simplifying the tax system, while strengthening it against the risk of aggressive tax planning. Limited ProgressImprove competition and regulatory predictability in the services sector.No Progress2020 CSR1Some progressTake all necessary measures, in line with the general escape clause of the Stability and Growth Pact, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Not relevant anymoreAddressshortagesofhealthworkersandensureanadequatesupplyofcriticalmedicalproductsandinfrastructureto increase the resilience of the health system.Some Progress Improve access to quality preventive and primary care services.Limited Progress2020 CSR2No ProgressProtect employment through enhanced short-time working arrangements and effective active labour-market policies and extend the duration of unemployment benefits.Limited ProgressImprove the adequacy of social assistance and ensure access to essential services andNo Progressquality education for all. No Progress2020 CSR 3Some ProgressEnsure liquidity support to SMEs.Substantial ProgressFront-load mature public investment projects andSome Progresspromote private investment to foster the economic recovery. Substantial ProgressFocus investment on the green and digital transition, in particular clean and efficient production and use of energy, Some Progresssustainable transport, Some Progresswater and waste management, No Progressresearch and innovation, andLimited Progressdigital infrastructure for schools. Limited Progress2020 CSR 4Limited ProgressEnsurethatanyemergencymeasuresbestrictlyproportionate,limitedintimeandinlinewithEuropeanandinternational standards and do not interfere with business activities and the stability of the regulatory environment. Limited ProgressEnsure effective involvement of social partners and stakeholders in the policy-making process.No ProgressImprove competition in public procurement.Limited Progress2020 CSR5No ProgressStrengthen the tax system against the risk of aggressive tax planning.No Progress 
 
 
  
 
Table (continued) 

Source: European Commission 

31 

2021 CSR1Some progressIn2022,maintainasupportivefiscalstance,includingtheimpulseprovidedbytheRecoveryandResilienceFacility, and preserve nationally financed investment.Substantial ProgressWheneconomicconditionsallow,pursueafiscalpolicyaimedatachievingprudentmedium-termfiscalpositionsand ensuring fiscal sustainability in the medium term.Some ProgressAt the same time, enhance investment to boost growth potential.(cid:13)Payparticularattentiontothecompositionofpublicfinances,onboththerevenueandexpendituresidesofthenationalbudget,andtothequalityofbudgetarymeasuresinordertoensureasustainableandinclusiverecovery.Prioritisesustainableandgrowth-enhancinginvestment,inparticularinvestmentsupportingthegreenanddigitaltransition.Some ProgressGiveprioritytofiscalstructuralreformsthatwillhelpprovidefinancingforpublicpolicyprioritiesandcontributetothelong-termsustainabilityofpublicfinances,including,whererelevant,bystrengtheningthecoverage,adequacyand sustainability of health and social protection systems for all.No Progress 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
ENVIRONMENTAL SUSTAINABILITY 
ENVIRONMENTAL SUSTAINABILITY 
ANNEX 5: GREEN DEAL 
ANNEX 5: GREEN DEAL 

intends 

The  European  Green  Deal 
to 
transform the  EU  into a  fair and prosperous 
society,  with  a  modern,  resource-efficient 
and competitive economy where there are no 
net  emissions  of  greenhouse  gases  in  2050 
and  where  economic  growth  is  decoupled 
from resource use. This Annex offers a snapshot 
of  the  most  significant  and  economically  relevant 
developments  in  Hungary  across  the  different 
building  blocks  of  the  European  Green  Deal.  It 
should  be  viewed  alongside  Annex 6  on  the 
employment  and  social  impact  of  the  green 
transition  and  Annex  7  for  the  just  transition  and 
circular-economy aspects of the Green Deal. 

in 

laying 

progress 

In  recent  decades,  Hungary  has  made 
considerable 
the 
foundations  for  a 
low-carbon  economy. 
However,  the  Hungarian  economy  is  still  more 
energy-intensive and carbon-intensive than the EU 
average.  This  shows  that  there  are  still  large 
opportunities  to  make  the  Hungarian  economy 
more  climate  resilient  and  sustainable.  In  2020, 
Hungary’s 
total  greenhouse  gas  emissions 
(excluding the land-use sector) were at 67% of its 
1990 levels. Although the emission intensity of its 
economy is higher than the EU average, emissions 
per  capita  in  Hungary  are  lower  than  the  EU 
average. Hungary is projected to  reach  its  current 
2030 effort-sharing target of cutting its emission 
levels  by  7%  by  2030  compared  to  2005  levels 
with existing measures. With additional measures, 
Hungary  would  overachieve  its  target  by  15 
percentage  points  (i.e.  it  would  cut  emissions  by 
19%  by  2030  compared 
levels). 
Additional measures would contribute to attaining 
a  higher  level  of  ambition;  Hungary’s  new  effort-
sharing  target  (under  the  July  2021  proposals 
delivering  the  European  Green  Deal)  is  to  cut 
emission  by  18.7%  by  2030  compared  to  2005 
levels. Comprehensive measures would be needed 
to  reverse  the  trend  in  recent  years  of  increasing 
emissions  in  the  transport  sector.  Under  current 
land-management  practices,  Hungary  is  projected 
to see decreasing net removals of carbon by 2030. 

to  2005 

line  with 

Environmental taxation in Hungary is largely 
in 
the  EU  average,  while 
government  spending  on  environmental 
protection is below the EU average. Hungary’s 
environmental  tax  revenues  amount  to  2.2%  and 
6% as a share of GDP and as a share of total tax 
revenues,  respectively.  Energy  taxes  account  for 

32 

to 

contributing 

taxes  also 

most  of  Hungary’s  environmental  taxes,  with 
transport 
the 
environmental tax base, albeit to a smaller extent. 
A  small  percentage  of  environmental  taxes  also 
comes from taxes on pollution. At the same time, 
the Hungarian government spends a smaller share 
of  its  expenditure  on  environmental  protection 
than  the  EU  average.  Fossil  fuel  subsidies  fell  in 
2020,  but  the  decline  has  not  been  stable  across 
time.  Budgetary  exposure  to  climate  hazards  (i.e. 
the climate risk to public finances due to uninsured 
assets)  is  considered  low/moderate.  (For  more 
indicators on taxation, see Annex 18.) 

Graph A5.1: Energy, Share in energy mix (solids, oil, 
gas, nuclear, renewables(1)) 

(1) The energy mix is based on gross inland consumption, and 
excludes heat and electricity. The share of renewables 
includes biofuels and non-renewable waste. 

Source: Eurostat 

Hungary still largely relies on fossil fuels, as 
the biggest contributor to its energy mix is natural 
gas (accounting for 35% of Hungary`s energy mix 
in  2020),  with  oil  having  a  share  of  30%. 
Renewables  represent  12%  of  the  energy  mix, 
around  two  thirds  of  which  come  from  solid 
biofuels  (biomass).  Nuclear  represents  around 
16%  of  the  energy  mix,  whereas  its  share  in 
electricity  generation  was  46%  in  2020.  Together 
(15%),  61%  of  Hungary`s 
with 
electricity  generation  mix  can 
therefore  be 
considered  as  coming  from  low-carbon  sources 
(i.e.  from  either  nuclear  or  renewable  sources). 
Hungary  aims  to  raise  the  percentage  of  carbon-
free electricity generation to 90% by 2030, and in 
2025 the country intends to phase out lignite-fired 
generation  from  electricity  production  (coal  fired 
assets have already been taken from the grid). 

renewables 

Hungary`s biodiversity and ecosystem health 
is  deteriorating.  In  2020,  Hungary  scored  below 

020406080100200520102015201820192020HUSolid fossil fuels, peat and oil shaleOilGasNuclearRenewables 
 
 
  
 
 
 
the Member States facing the greatest challenges 
to tackle nutrient pollution from agriculture. 

even 

cars 

though 

two  measures, 

On  mobility,  the  number  of  public  charging 
points  for  electric  cars  and  the  share  of 
in  new 
zero-emission  passenger 
registrations  is  growing  steadily  in  Hungary. 
Hungary  still  scores  below  the  EU  average  on 
the 
these 
corresponding indicators show that Hungary has a 
leading position in these areas compared to other 
central  European  countries.  Hungary  remains  one 
of  the  most  traffic-congested  EU  Member  States, 
with an increasing number of hours lost per driver 
per  year,  mainly  in  urban  areas  (more  than  42 
hours  per  year  in  2020  –  above  the  EU  average). 
Insufficient  measures  to  tackle  traffic  congestion 
might  jeopardise  clean-mobility  achievements  in 
urban areas. About 42% of the railroad kilometres 
in  Hungary  are  electrified.  Over  the  last  5  years, 
Hungary  has  experienced  a  strong  increase  in 
emissions  in  the  transport  sector  which  is  rapidly 
becoming  the  country`s  largest  emitting  sector. 
Transport  emissions  are  projected  to  continue  to 
increase under current policies 

Graph A5.3: Mobility, Share of zero emission 
vehicles (% of new registrations) 

Source: European Alternative Fuels Observatory. Zero 
emission vehicles (passenger cars) include battery and fuel 
cell electric vehicles (BEV, FCEV). 

sites 

have 

the EU average for the share of its terrestrial area 
devoted  to  protected  areas.  Moreover,  two  of 
Hungary’s  Natura 
no 
2000 
management  plans,  and  Hungary’s  Natura  2000 
conservation measures and objectives are not yet 
entirely in line with the relevant guidance. Hungary 
also  scores  below  the  EU  average  on  two  other 
measures:  utilised  agricultural  area  under  organic 
farming  (6.03%)  and  share  of  land  under  forest 
(26.1%).  Many  protected  habitats  and  species 
remain  in  unfavourable  conservation  status,  with 
further recent declines. Only 13.3% of habitats are 
in good conservation status. However, Hungary has 
35%  of  species  in  good  conservation  status,  but 
this share is declining compared to previous years. 
Several  factors  are  contributing  to  the  general 
degradation of biodiversity in Hungary: (i) intensive 
agricultural  practices;  (ii)  soil  artificialisation;  (iii) 
pollution  of  air,  soil  and  water;  and  (iv)  climate 
change. 

Graph A5.2: Biodiversity, Terrestrial protected 
areas and organic farming 

Source: EEA (terrestrial protected areas) and Eurostat 
(organic farming). For terrestrial protected areas data for 
2018, and data for the EU average (2016, 2017) is lacking. 

Air  pollution  in  Hungary  is  serious  cause  for 
concern. Although emissions of key air pollutants 
in  Hungary  have  decreased  in  recent  years,  they 
are  still  well  above  the  EU  average.  In  2020,  no 
exceedances above the EU limit values set by the 
Ambient  Air  Quality  Directive  were  registered  in 
Hungary.  However,  the  European  Commission  is 
monitoring  an  infringement  procedure  against 
Hungary  for  persistent  breaches  of  air-quality 
standards  with  exceedances  of  fine  particulate 
matter  (PM10)  and  nitrogen  dioxide  (NO2)  limit 
in  several  air-quality  zones.  These 
values 
exceedances,  severely damage  human  health  and 
the  environment.  On the pollution  of groundwater 
by  nitrates,  the  situation  in  Hungary  is  generally 
good.  However,  a  very  high  number  of  surface 
waters  are  eutrophic.  Hungary  has  recorded  poor 
water quality all around its territory and is one of 

33 

020402016201720192020HUTerrestrial protected areas (% total area)Area under organic farming (% total utilised agricultural area)EU27 (terrestrial)EU27 (organic)0.02.04.06.08.010.0201620172018201920202021% of new registrationsHUEU27 
  
  
 
Table A5.1: Indicators underpinning progress on the-European Green Deal from a macroeconomic 
perspective 

(1) The 2030 non-ETS GHG target is based on the Effort Sharing Regulation. The Fit for 55 targets are based on the Commission 
proposal to increase the EU's climate ambition by 2030. Renewables and energy efficiency targets and national contributions 
under the Governance Regulation (Regulation (EU) 2018/1999).  
(2) Distance to target is the gap between 2030 Effort Sharing Regulation targets and projected emissions with existing measures 
(WEM) and with additional measures (WAM) as a percentage of 2005 base year emissions.  
(3) Percentage of total revenues from taxes and social contributions (excluding imputed social contributions). Revenues from the 
Emissions Trading System are included in environmental tax revenues (in 2017 they amounted to 1.5% of total environmental tax 
revenues at the EU level).  
(4) Covers expenditure on gross fixed capital formation to be used for the production of environmental protection services (i.e. 
abatement and prevention of pollution) covering all sectors, i.e. government, industry and specialised providers.  
(5) The climate protection gap indicator is part of the EU adaptation strategy (February 2021), and is defined as the share of non-
insured economic losses caused by climate-related disasters.  
(6) Sulfur oxides (SO2 equivalent), ammonia, particulates < 10µm, nitrogen oxides in total economy (divided by GDP). 
(7) Transportation and storage (NACE Section H).  
(8) Zero-emission vehicles include battery-electric vehicles and fuel-cell electric vehicles.  
(9) European Commission Report (2019) 'Benchmarking smart metering deployment in the EU-28'.  
(10) European Commission (2021). Each year the Digital Economy and Society Index (DESI) is re-calculated for all countries for 
previous years to reflect any possible change in the choice of indicators and corrections to the underlying data. Country scores 
and rankings may thus differ compared with previous publications. 

Source: Eurostat, JRC, European Commission, EEA, EAFO  

34 

TargetTarget2005201920202030WEMWAM2030WEMWAMNon-ETS GHG emission reduction target (1)MTCO2 eq; %; pp (2)47.8-7%-7%-7%015-19%-123200520162017201820192020Share of energy from renewable sources in gross final consumption of energy (1)%7%14%14%13%13%14%21%Energy efficiency: primary energy consumption (1)Mtoe26.323.724.524.524.623.9-Energy efficiency: final energy consumption (1)Mtoe18.717.818.518.518.618.018.7201520162017201820192020201820192020Environmental taxes (% of GDP)% of GDP2.52.52.42.32.32.22.42.42.2Environmental taxes (% of total taxation)% of taxation (3)6.46.56.46.26.26.06.05.95.6Government expenditure on environmental protection% of total exp.2.361.060.940.801.04-1.661.69-Investment in environmental protection% of GDP (4) 1.580.390.390.49--0.420.380.41Share of green bonds---------Fossil fuel subsidiesEUR2020bn1.641.541.751.691.771.3056.8755.7041.27Climate protection gap (5)score 1-4Net GHG emissions1990 = 100656669696967797669GHG emissions intensity of the economykg/EUR'100.610.600.600.570.530.550.320.310.30Energy intensity of the economykgoe/EUR'100.230.230.230.220.210.210.120.110.11Final energy consumption (FEC)2015=100100.0102.2106.3106.5106.9103.5103.5102.994.6FEC in residential building sector2015=100100.0103.4105.497.595.199.9101.9101.3101.3FEC in services building sector2015=100100.099.497.895.293.090.8102.4100.194.4Smog-precursor emission intensity (to GDP) (4)tonne/EUR'10 (6)1.801.661.601.541.40-0.990.93-Years of life lost caused due to air pollution by PM2.5per 100.000 inh.14131322155815591205-863762-Years of life lost due to air pollution by NO2per 100.000 inh.14584139101102-12099-Nitrate in ground watermg NO3/litre------21.720.7-Terrestrial protected areas% of total-22.022.2-22.222.2-25.725.7Marine protected areas% of total---------Organic farming% of total utilised agricultural area2.43.53.73.95.76.08.08.59.100-0606-1212-18Net land takeper 10,000 km213.011.05.0201520162017201820192020201820192020GHG emissions intensity of transport (to GVA) (7)kg/EUR'101.131.061.141.141.020.940.890.870.83Share of zero emission vehicles (8)% in new registrations0.20.20.60.91.22.21.01.95.32366886710Share of electrified railways%39.039.940.540.541.9-55.656.0-27.327.627.627.330.2-28.928.8-YearHUEUShare of smart meters in total metering points (9) - electricity% of total20181.035.8Share of smart meters in total metering points (9) - gas% of total20180.213.1ICT used for environmental sustainability (10)%202165.165.9DigitalFiscal and financialindicators1.3 out of 4 (decrease from historical level of 1.8). This is a low risk category (4 being a high risk).ClimateEnergyPollutionBiodiversity2000-20062006-20122012-201816.18.15.9MobilityNumber of plug-in electric vehicles per charging pointCongestion (average number of hours spent in road congestion per year by a representative commuting driver)Progress to policy targetsNational contribution to 2030 EU targetHUNGARYEU'Fit for 55'DistanceDistance 
 
  
 
 
ANNEX 6: EMPLOYMENT AND SOCIAL IMPACT OF THE GREEN TRANSITION 
ANNEX 6: EMPLOYMENT AND SOCIAL IMPACT OF THE GREEN TRANSITION 

The  green  transition  not  only  encompasses 
environmental 
to 
improvements 
sustainability, but also includes a significant 
social  dimension. While  measures  in this  regard 
include the opportunity for sustainable growth and 
job creation, it must also be ensured that no one is 
left  behind  and  all groups  in  society  benefit  from 
the transition. 

for 

in  energy  poverty  in  2016.  However,  this  national 
energy and climate plan continues with a sub-plan 
to  reduce  the  cost  of  utilities’  which:  (i)  does  not 
account 
the  specificities  of  vulnerable 
households;  and  (ii)  does  not  specifically  address 
the social, employment and skills consequences of 
a  just  transition.  Hungary’s  draft  just  transition 
plan  2021-2027  could  also  be  strengthened  with 
more detail on addressing those challenges. 

Graph A6.1: Fair green transition challenges 

Graph A6.2: Energy poverty by income decile 

(1) Numbers are the normalised indicator performance, 
signifying factors relative to the EU27 average. 
(2) Carbon inequality: average emissions per capita top 10% 
vs bottom 50% (2019). 

(1) HH050: Ability to keep home adequately warm; 
(2) HY020: Total disposable household income 

Source: Eurostat, World Inequality Database 

Source: Eurostat EU-SILC survey (2020) 

Hungary’s green  economy is still limited and 
its  development,  supported  by  investments 
and  reforms  included  in  the  RRP,  can  foster 
sustainable  growth  and  quality  job  creation. 
At the same time, the green transition is expected 
to affect low to middle-income groups to a larger 
extent.  

Hungary’s draft  recovery  and  resilience  plan 
(RRP) outlines two proposed investments for 
a  fair  green  transition.  For  poor  households 
with  young  children  in  the  300  most  deprived 
settlements, it  plans to provide  electric  heating  in 
at  least  one  room.  Hungary  would  install  social 
solar  power  plants  and  provide  social  transfer 
using  the  revenues  from  these  power  plants.  For 
households  with 
income  below  the  national 
average,  the  RRP  supports  energy  saving  by 
replacing  windows  and  upgrading  heating 
installations through solar panels and heat pumps. 
Together with the Recovery and Resilience Facility, 
the  European  Social  Fund  Plus  (ESF+)  will  help  to 
unlock  the  potential  for  ‘green  jobs’  in  Hungary. 
Hungary’s  2020  national  energy  and  climate plan 
found that 9.8% of the country`s households were 

Even  though  key  energy-intensive  sectors 
remain  sizeable,  Hungary`s  economy  has 
slightly reduced its carbon footprint and the 
modest green sector has strong potential for 
job  creation.  The  greenhouse  gas 
(GHG) 
emissions  intensity  of  the  Hungarian  economy 
decreased  slightly  between  2015  and  2020  (in 
terms of gross value added) and now stands 33% 
below  the  EU  average,  with  an  average  carbon 
footprint  per  worker  at  10.98  tonnes  of  GHG 
emissions (13.61 in the EU) (see Figure 1). Sectors 
that  are  likely  to  decline  due  to  the  green 
transition include coal/lignite extraction and fossil- 
fuel-  based  electricity  production (23).  Together 
with Hungary’s energy-intensive industry, including 
metals,  cement  and  chemicals (24),  these  sectors 
that are set to decline provide jobs for 3.9% of all 
workers,  for  whom  upskilling  and  reskilling  could 
be particularly important (see Annex 15). Although 
no  indicators  are  available  on  the  employment 

(23)  SWD(2021) 275 final. 

(24)  2020 European Semester: Overview of Investment Guidance 
on the Just Transition Fund 2021-2027 per Member State 
(Annex D). 

35 

0.000.501.001.502.002.50GHG tonnes per Euroof gross added value(MS/EU)GHG tonnes perworker (MS/EU)Employment share inenergy-intensiveindustries (MS/EU)Share of populationin rural areas at riskof poverty (MS/EU)Energy poverty(MS/EU)Carbon inequality(MS/EU)HungaryEU 2020Hungary 20150%5%10%15%20%25%12345678910Unable to keep home adequately warm (per income decile)Income decileHungaryEuropean Union 
 
  
 
  
 
                                                 
 
and 

energy 

share  of  environmental  goods  and  services (25), 
energy-efficiency 
renewable 
improvements  offer  opportunities  to  create  more 
green  jobs (26).  Labour  shortages  linked  to  the 
transition to a climate-neutral economy have been 
identified in the energy sector (27). 

The  green  transition  presents  manageable 
social  challenges  for  Hungary.  The  share  of 
people  at  risk  of  poverty  or  social  exclusion  is 
lower  in  Hungary  than  the  EU  on  average (19.4% 
in Hungary and 21.6% in the EU-27), but close to 
the  average  in  rural  areas  (22.2%  in  Hungarian 
rural  areas  and  22.8%  in  EU-27  rural  areas) (28). 
The  share  of  the  population  unable  to  keep  their 
homes  adequately  warm  (see  Graph  A6.2)  was 
below  the  EU  average  in  2020  (4.2%  in  Hungary 
compared  to  8.2%  in  the  EU),  as  the  government 
regulations  have  ensured  that  the  price  of 
electricity,  gas  and  district  heating  has  remained 
unchanged  since  2013.  Firewood,  which  is  not 
covered by this price freeze, is still widely used in 
rural  areas,  and  its  price  has  increased  by  75% 
since  2010.  Lower-income  groups,  especially 
Roma  are  affected  the  most  by  these  price 
increases, as 37% of lower-income groups do not 
have  access  to  adequate  housing.  Consumption 
patterns  vary  across  the  population:  the  average 
carbon  footprint  for  the  top  10%  of  emitters  in 
Hungary  is  about  6  times  higher than  that  of  the 
bottom 50% of the population (against an average 
of 5.3 times in the EU). 

Tax  systems  are  key  to  ensuring  a  fair 
transition  to  climate  neutrality (29).  Hungary’s 
revenues  from  total  environmental  taxes  slightly 
decreased  between  2015  and  2019  from  2.47% 
of  GDP  to  2.26%,  and  fell  further  to  2.18%  in 
2020  (against  2.24%  in  the  EU  in  2020).  The 

(25)  There is currently no common EU-wide definition of green 
jobs. The environmental goods and services sector (EGSS) 
accounts only report on an economic sector that generates 
environmental products, i.e. goods and services produced for 
environmental protection or resource management. 

(26)

https://publications.jrc.ec.europa.eu/repository/handle/J

RC126047. 

(27)  Eurofound (2021), Tackling labour shortages in EU Member 

States, Publications Office of the European Union, 
Luxembourg. 

(28)  Based on COM(2021) 568 final (Annex I) this indicator can 
be used as a proxy for potential transport challenges in the 
context of the green transition (e.g. due to vulnerability to 
fuel prices). 

(29)  COM(2021) 801 final. 

labour  tax  wedge  for  low-income  earners (30) 
decreased  from  49%  to  44.6%  from  2015  to 
2019, and to 43.2% in 2020, (compared to 31.9% 
in  the  EU  in  2020)  (see  Annex  18).  There  is  thus 
scope 
taxation 
accompanied with redistributive measures to  limit 
their impact on the living standards of low-income 
households. 

environmental 

increase 

to 

(30)  Tax wedge for a single earner at 50% of the national 
average wage (Tax and benefits database, European 
Commission/OECD). 

36 

 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
PRODUCTIVITY 
PRODUCTIVITY 
ANNEX 7: RESOURCE EFFICIENCY AND PRODUCTIVITY 
ANNEX 7: RESOURCE EFFICIENCY AND PRODUCTIVITY 

while 

minimising 

The  efficient  use  of  resources  is  key  to 
ensuring  competitiveness  and open strategic 
autonomy, 
the 
environmental  impact.  The  green  transition 
presents  a  major  opportunity  for  European 
industry 
clean 
creating  markets 
technologies  and  products.  It  will  have  an  impact 
across  the  entire  value  chains  in  sectors  such  as 
energy and transport, construction and renovation, 
food  and  electronics,  helping  create  sustainable, 
local and well-paid jobs across Europe. 

for 

by 

Graph A7.1: Municipal waste treatment 

Source: Eurostat 

Hungary  performs  worse  than  the  EU 
average  in  its  use  of  circular  secondary 
materials. Hungary has made  steady  progress in 
this area in recent years, but with a circularity rate 
of  8.7%  (versus  12.8%  for  the  EU),  a  large  share 
of materials are still not recycled or reused in the 
Hungarian  economy.  A  national  circular  economy 
platform  was  set  up  in  2018  to  monitor  the 
situation. Currently, there is little awareness of the 
circular  economy  in  Hungary,  and  its  principles 
(water  and  energy  savings,  waste  reduction, 
recycling,  eco-design,  and secondary  markets)  are 
not  sufficiently 
into  all  economic 
sectors. 

integrated 

expresses  how 

Resource  productivity  in  Hungary  remains 
the  EU  average.  Resource 
31%  below 
productivity 
the 
economy  uses  material  resources  to  produce 
wealth. Improving resource productivity can help to 
minimise  damage  to  the  environment  and  reduce 
dependency  on  volatile  raw  material  markets. 

efficiently 

Despite  a  small  recent  increase  in  the  country’s 
ability  to produce  wealth from  material  resources 
(up by 7.3% from 2019-2020), Hungary’s resource 
productivity  has  not  changed  substantially  over 
the past 5 years, and it continues to be one of the 
lowest performers in the EU. 

its  2020 
Hungary  has  failed  to  meet 
recycling target and is still well below the EU 
average in recycling. Hungary’s municipal-waste 
generation  is  lower  than  the  EU  average  (1 879 
kg/capita  against  an  EU  average  of  5 234 
kg/capita in 2018), but increasing, partly related to 
its lower but converging income level. The country 
has made progress in increasing its recycling rate 
from  32.2%  in  2015  to  37.4%  in  2018  and  in 
diverting  municipal  waste  from  landfilling  by 
reducing  the  landfill  rate  from  74%  in  2004  to 
24.5%  in  2018.  Still,  landfill  remains  a  major 
waste-management method, and Hungary requires 
further  investment  to  reach  the  EU  recycling 
targets.  Furthermore,  Hungary  failed  to  reach  its 
2018 target to improve the recycling rate for glass 
packaging,  and  the  recycling  rate  of  municipal 
waste has also decreased since 2018.  

Graph A7.2: Economic importance and expansion of 
the circular economy - employment and value 
added in the circular economy 

(1) Employment and value added in the Circular Economy 
sectors 
Source: Eurostat 

Hungary  needs  to  catch  up  with  the  EU  on 
environmental  technology  and  innovation. 
Hungary  ranked  25th  among  EU  members  in  the 
Eco-Innovation  Scoreboard  of  2021,  with  the 
weakest performance in eco-innovation inputs and 
outputs.  

37 

3773793853813873640100200300400500600201520162017201820192020Kg per capita Landfill/disposalTotal incineration (including energy recovery)Composting and digestionMaterial recyclingTotal municipal waste generated (Kg per capita)EU 271.82%1.92%1.88%1.96%0.76%0.90%0.97%1.24%1.72%1.73%1.75%1.71%0.94%0.94%0.96%0.97%0.0%0.5%1.0%1.5%2.0%2.5%2015201620172018Persons employed in the circular economyValue added at factor costEU 27 (persons employed)EU 27 (value added) 
 
 
  
  
 
 
Table A7.1: Selected resource efficiency indicators 

Source: Eurostat 

38 

SUB-POLICY AREA201520162017201820192020EU27 CircularityResource Productivity (Purchasing power standard (PPS) per kilogram)1.51.61.51.41.41.52.22020Material Intensity (kg/EUR)0.70.60.70.70.70.60.42020Circular Material Use Rate (%)5.86.56.97.07.38.712.82020Material footprint (Tones/capita)13.112.614.315.516.6-14.62019Waste Waste generation (kg/capita, total waste)- 1624- 1879- - 52342018Landfilling (% of total waste treated)-34.2-24.5--38.52018Recycling rate (% of municipal waste)32.234.735.037.435.933.047.82020Hazardous waste (% of municipal waste)-2.9-3.0--4.32018CompetitivenessGross value added in environmental goods and services sector (% of GDP)------2.32018Private investment in circular economy (% of GDP)0.10.20.10.2--0.12018Source: Eurostat201520162017201820192020Persons employed in the circular economy, HU (% of total employment)1.82%1.92%1.88%1.96%--Value added at factor cost, HU (% of GDP)0.76%0.90%0.97%1.24%--Persons employed in the circular economy, EU27 (% of total employment)1.72%1.73%1.75%1.71%--Value added at factor cost, EU27 (% of GDP)0.94%0.94%0.96%0.97%--201520162017201820192020Total municipal waste generated (Kg per capita)377379385381387364Total waste treatment377380383383388364Material recycling9810210311110381Composting and digestion233032323639Total incineration (including energy recovery)535662515362Landfill/disposal202192186189196182Difference waste generated/treatment 0-120EU 27480490496496502505Latest year EU 27Graph - Economic importance and expansion of the circular economySource: EurostatGraph - Municipal waste treatment  
 
 
 
 
  
 
ANNEX 8: DIGITAL TRANSITION 
ANNEX 8: DIGITAL TRANSITION 

The Digital Economy and Society Index (DESI) 
monitors EU Member States’ digital progress. 
The  areas  of  human  capital,  digital  connectivity, 
the 
technologies  by 
businesses  and  digital  public  services  reflect  the 
Digital  Decade’s  four  cardinal  points  (31).  This 
Annex describes Hungary’s DESI performance. 

integration  of  digital 

Hungary scores below the EU average in the 
DESI  dimension  on  human  capital.  Only  about 
half  of  the  population  possess  at-least-basic 
digital  skills.  The  proportion  of  specialists  in 
information  and  communications  technology  (ICT) 
in  the  Hungarian  workforce  has  increased  slightly 

in recent years, but remains rather low. 

has 

connectivity 

Broadband 
improved 
significantly.  Fixed  very  high  capacity  network 
coverage  went  up  from  49%  in  2020  to  79%  in 
2021,  surpassing  the  EU  average  of  70%. 
However,  5G  coverage  remains  low  (18%  of 
populated areas in June 2021 compared to 66% in 
the EU). 

Table A8.1: Key Digital Economy and Society Index indicators 

(1) The 5G coverage indicator does not measure users’ experience, which may be affected by a variety of factors such as the type 
of device used, environmental conditions, number of concurrent users and network capacity. 5G coverage refers to the percentage 
of populated areas as reported by operators and national regulatory authorities. 
Source: Digital Economy and Society Index 

(31)  2030 Digital Compass: the European Way for the Digital 

Decade Communication, COM (2021) 118 final 

39 

EUEU top-performanceHuman capitalDESI 2020DESI 2021DESI 2022DESI 2022DESI 2022At least basic digital skillsNANA49%54%79%% individuals202120212021ICT specialists3.4%3.8%3.9%4.5%8.0%% individuals in employment aged 15-7420192020202120212021Female ICT specialists11%12%14%19%28%% ICT specialists20192020202120212021ConnectivityFixed Very High Capacity Network (VHCN) coverage43%49%79%70%100%% households201920202021202120215G coverage (1)NA7%18%66%99.7%% populated areas2020202120212021Integration of digital technologySMEs with at least a basic level of digital intensityNANA34%55%86%% SMEs202120212021Big data6%7%7%14%31%% enterprises20182020202020202020CloudNANA21%34%69%% enterprises202120212021Artificial IntelligenceNANA3%8%24%% enterprises202120212021Digital public servicesDigital public services for citizensNANA6475100Score (0 to 100)202120212021Digital public services for businessesNANA7482100Score (0 to 100)202120212021Hungary 
 
                                                 
 
 
 
 
 
  
 
Hungary  performs  poorly  on  the  integration 
of digital technology into business activities.  
Only  34%  of  SMEs  in  Hungary  were  of  at-least-
basic  digital  intensity  in  2021  (compared  with 
55%  for  the  EU  average).  The  use  of  advanced 
digital  technologies,  like  big  data  and  artificial 
intelligence,  is  less  than  half  the  EU  average (7% 
in  Hungary  against  14%  in  the  EU),  and  13 
percentage points lower for cloud (21% in Hungary 
against 34% in the EU). 

Digital  public  services  also 
remain  a 
challenge.  Hungary`s  scores  for  provision  of 
digital  public  services  to  both  businesses  and  the 
general  public  are  below  the  EU  average,  mainly 
because of the lack of cross-border services. 

40 

 
 
 
Hungarian 

universities. 

There has recently been centralisation and a 
rapid  change  in  the  organisational  model  of 
several 
These 
universities  have  come  under  the  ownership  and 
management  of  private  foundations  whose  board 
members  are  appointed  by  the  government  for 
life.  In  addition,  the  Eötvös  Loránd  research 
network took control of 40 institutes that belonged 
to  the  Hungarian  Academy  of  Sciences.  These 
changes  have  not  yet  brought  the  anticipated 
positive effects in improvements to the quality of 
higher  education  and  research  in  Hungary.  The 
public  monitoring  of  teachers’  and  researchers’ 
autonomy,  accountability  and  performance 
in 
these institutions will be key. 

ANNEX 9: INNOVATION 
ANNEX 9: INNOVATION 

This  Annex  provides  a  general  overview  on 
the  performance  of  Hungary’s  research  and 
innovation  system.  Hungary  is  an  emerging 
innovator  and  its  performance  relative  to  the  EU 
has  deteriorated  in  recent  years  according  to  the 
2021  edition  of 
Innovation 
Scoreboard (32).  

the  European 

The  outputs  of  the  Hungarian  public  science 
system and the availability of science-savvy 
workers  remained  below  the  EU  average. 
Total  R&D  intensity  increased  to  1.61%  in  2020, 
but  remained  below  the  target  of  1.8%  that 
Hungary  had  set  for  itself.  While  private  R&D 
spending 
rose,  public  sector  R&D  spending 
decreased  over  the  last  decade  from  0.43%  of 
GDP in 2010 to 0.37% of GDP in 2020, well below 
the  EU  average  of  0.78%.  While  the  share  of 
science  and  engineering  graduates  in  the  25-34 
age group rose in the early 2010s, it stagnated in 
recently  and  remains  significantly  below  the  EU 
average. 

Despite  the  generous  public  support  for 
linkages 
private  R&D,  academia-business 
have  not 
rising  R&D 
improved.  Despite 
expenditure  by  Hungarian  businesses,  science-
business  linkages  have  remained  weak.  This  is 
reflected in the low share of public research that is 
funded  by  the  private  sector.  This  share  remains 
just  one-fifth  of  the  EU  average.  On  the  positive 
side,  the  volume  of  venture  capital  has  increased 
over  the  last  decade,  reaching  0.08%  of  GDP, 
which 
is  well  above  the  EU  average.  The 
employment  in  fast-growing  enterprises  in  the 
50% of most innovative sectors is also above the 
EU average. 

the 

limited 

resources 

Altogether 
that 
in 
Hungary  devoted  to  science  resulted 
stagnating  scientific  performance.  The  share 
of  scientific  publications  by  Hungarian  authors 
that  were  among  the  highest-cited  in  the  world 
increased somewhat (from 4.7% in 2013 to 5.5% 
in  2018),  but  the  number  of  patent  applications 
decreased.  Both  indicators  remained  well  below 
the EU average.  

(32)  2021 European Innovation Scoreboard, Country profile: 

Hungary  
https://ec.europa.eu/docsroom/documents/45917/attachment
s/1/translations/en/renditions/native 

41 

 
 
                                                 
 
 
Table A9.1: Key research, development and innovation indicators 

 DG Research and Innovation - Common R&I Strategy and Foresight Service - Chief Economist Unit        

Source: Eurostat, OECD, DG JRC, Science-Metrix (Scopus database and EPO’s Patent Statistical database), Invest Europe        

42 

CompoundEUannual growthaverage2010-20R&D Intensity (GERD as % of GDP)1.131.341.511.481.602.392.32Public expenditure on R&D as % of GDP0.430.340.360.360.37-2.350.78Business enterprise expenditure on R&D (BERD) as % of GDP0.680.981.141.111.224.831.53Scientific publications of the country within the top 10% most cited publications worldwide as % of total publications of the country 54.95.5::1.19.9PCT patent applications per billion GDP (in PPS)1.41.31.1 -3,23.5Public-private scientific co-publications as % of total publications9.39.710.210.410.10.89.05Public expenditure on R&D financed by business enterprise (national) as % of GDP0.0570.0290.0210.01-20.20.054New graduates in science & engineering per thousand pop. aged 25-347.210.79.59.3:0.916.3Total public sector support for BERD as % of GDP0.2650.3540.2570.245:-3.70.196R&D tax incentives: foregone revenues as % of GDP0.1630.1480.0570.053:-11.70.100Environment-related patents11,8 10,8 11.310.3 -1,712,8 Venture Capital (market statistics) as % of GDP0.010.040.0410.0610.08123.10.054Employment in fast-growing enterprises in 50% most innovative sectors7.58.78.98.180.85.5Finance for innovation and Economic renewalKey indicators Quality of the R&I systemAcademia-business cooperationHuman capital and skills availabilityPublic support for business enterprise expenditure on R&D (BERD)Green innovation 2020Hungary2010201520182019 
 
 
  
 
 
ANNEX 10: INDUSTRY AND SINGLE MARKET 
ANNEX 10: INDUSTRY AND SINGLE MARKET 

prosperity,  well-being 

Productivity  growth  is  a  critical  driver  of 
and 
economic 
convergence over the long run. A major source 
of  productivity  for  the  EU  economy  is  a  well-
functioning single market, where fair and effective 
competition and a business friendly environment is 
ensured,  in  which  small  and  medium  enterprises 
(SMEs) can operate and innovate without difficulty. 
Businesses  and  industry  rely  heavily  on  robust 
supply chains and are facing bottlenecks that bear 
a  negative  impact  on  firms’  productivity  levels, 
employment,  turnover  and  entry/exit  rates.  This 
may impact the Member States’ capacity to deliver 
on Europe’s green and digital transformation. 

Hungary  is  highly  integrated  into  the  single 
market. The ratio of intra-EU trade value to extra-
EU trade value is 3.16 compared to an EU average 
of 1.59. Hungary also relies more heavily on an EU 
sources  than  the  EU  average  (27.3%  of  value 
added  is  sourced  from  the  rest  of  the  EU 
compared to an EU average of 19.7%).  

Hungarian  firms  are  often  found  in  the  low 
value-added  stage  of  global  supply  chains. 
These activities are also particularly vulnerable  to 
value-chain  disruptions.  Because  of  their  labour 
intensive activities, Hungarian firms are especially 
exposed to labour shortages: 33% of firms report 
problems 
adequate  workforce 
compared to an EU average of 14%.  

finding 

an 

Hungary has high investment levels but their 
composition  of  this  investment  does  not 
favour  research  and  innovation.  In  recent 
years,  private  and  public  investment  were  above 
the EU average. Private investment was spurred by 
investment,  as  well  as 
new  foreign  direct 
to  automate  production. 
companies’  efforts 
large  gap  between 
is  a 
Nevertheless,  there 
Hungary  and  the  EU  average  for 
intangible 
investment,  especially  in  manufacturing  and  in 
information-communication, 
that 
intangible 
typically  make 
assets (33). Closing this gap would allow Hungarian 
firms  to  access  knowledge  and  skills  which  could 
strengthen their position in global value chains and 
research  and 
increase  productivity.  However, 
innovation  remain  a 
low  priority  for  public 
investments (see also in Annex 9).  

intensive  use  of 

two  sectors 

(33)  JRC Country Factsheet on Productivity – Hungary (2022), 

is 

than 

their 

European 

business 

environment 

The 
overall 
remain  about 
supportive,  but  concerns 
corruption, public procurement and economic 
protectionism.  In  the  EIB  Investment  Survey 
2021,  Hungarian  firms  were  on  average  more 
optimistic  about  the  outlook  for  the  political  and 
regulatory  climate  and  the  availability  of  external 
peers (34). 
finance 
Nonetheless,  data  by  the  European  Investment 
Fund  point  to  stronger  financing  constraints  for 
SMEs in Hungary than in the EU (see Table A10.1). 
Business  surveys  show 
that  managers  are 
relatively  satisfied  with  policy  stability,  public 
administration,  taxation  and  public  subsidies,  and 
the  flexibility  of  labour  market  regulations  in 
Hungary,  compared  to  other  central  and  eastern 
European  countries  or  the  EU  average.  However, 
the  same  surveys  also  show  that  Hungary 
performs  relatively  poorly  in  the  fight  against 
corruption  and 
transparency  of  public 
procurement (35).  The  perceived  risk  of  economic 
protectionism  is  also  relatively  high  in  regional 
comparison (36).  Policies that  aim  to  shield  certain 
markets  from  competition  can  reduce  consumer 
welfare.  For  example,  more  Hungarian  consumers 
complain  about  the  negative 
low 
competition than the EU average in food retailing, 
pharmaceutical products and financial services (37). 

impact  of 

the 

factors 

The  competitiveness  of  public  procurement 
remains  a  significant  challenge  in  Hungary. 
to  hinder 
fair 
continue 
Systemic 
in  public  procurement  and 
competition 
risk 
undermining 
the  selection 
the  efficiency  of 
process.  Public  bodies  do  not  always  receive  the 
best  value  for  money  as  the  proportion  of 
contracts  awarded  where  there  is  just  one  bidder 
is  one  of  the  highest  in  the  EU (38).  Hungary 
performs  better  in  comparison  to  the  EU  average 
when  it  comes  to  the  proportion  of  SMEs  among 

(34)  EIB (2021): EIB Investment Survey 2021: Hungary Overview. 

European Investment Bank. Available at 
https://bit.ly/3kJKW9G  

(35)  AHK (2021): AHK Konjunkturumfrage Mittel- und Osteuropa 

2021. German Chambers of Commerce. Available at 
https://bit.ly/3kJHbRy. European Commission (2019): Flash 
Eurobarometer 482: Businesses and corruption. Available at 
https://europa.eu/eurobarometer/surveys/detail/2248  

(36)  DUIHK (2021): DUIHK-Konjunkturumfrage Herbst 2021. 
Deutsch-Ungarische Industrie- und Handelskammer. 
Available at https://bit.ly/3ycScmp  

(37)  European Commission (2019): Flash Eurobarometer 476: 

Citizens’ perceptions about competition policy. Available at: 
https://europa.eu/eurobarometer/surveys/detail/2209   

European Commission, internal communication. 

(38)  Public Procurement | Single market scoreboard (europa.eu) 

43 

 
 
                                                 
                                                 
 
public procurement contractors (78% compared to 
an EU average of 63%) and the proportion of bids 
from  SMEs  (77%  compared  to  an  EU  average  of 
for 
70.8%).  However, 
there 
improvement  as  SMEs  constitute  the 
largest 
proportion of companies in the economy.  

is  still 

room 

44 

 
Table A10.1: Overview of Industry and Single Market in Hungary 

(*) latest available 

Source:  See above in the table the respective source for each indicator in the column “description”.  

45 

SUB-POLICY AREAINDICATOR NAMEDESCRIPTION20212020201920182017Growth ratesEU27 average*Value added by source (domestic)VA that depends on domestic intermediate inputs, % [source: OECD (TiVA), 2018]56.2662.6%Value added by source (EU)VA imported from the rest of the EU, % [source: OECD (TiVA), 2018]27.3219.7%Value added by source (extra-EU)% VA imported from the rest of the world, % [source: OECD (TiVA), 2018]16.417.6%Cost competitivenessProducer energy price (industry)Index (2015=100) [source: Eurostat, sts_inppd_a]133104.5109.2105.697.336.7%127.3Material Shortage using survey dataAverage (across sectors) of firms facing constraints, % [source: ECFIN CBS]2510141012108%26%Labour Shortage using survey dataAverage (across sectors) of firms facing constraints, % [source: ECFIN CBS]3325576152-37%14%Sectoral producer pricesAverage (across sectors), 2021 compared to 2020 and 2019, index [source:Eurostat]12.8%5.4%Concentration in selected raw materialsImport concentration a basket of critical raw materials, index [source: COMEXT]0.190.20.180.20.2-5%17%Installed renewables electricity capacity Share of renewable electricity to total capacity, % [source:Eurostat, nrg_inf_epc]16.1012.107.805.20210%Net Private investmentsChange in private capital stock, net of depreciation, % GDP [source: Ameco]6.78.66.64.936.7%2.6%Net Public investmentsChange in public capital stock, net of depreciation, % GDP [source: Ameco]2.52.62.31.1127%0.4%Single Market integrationIntra-EU tradeRatio of Intra-EU trade to Extra-EU trade, index [source: Ameco]2.962.953.043.083.16-7%1.59Professional services restrictivenessRegulatory restrictiveness indicatorRestrictiveness of access to and exercise of regulated professions (professions with above median restrictiveness, out of the 7 professions analysed in SWD (2021)185 [source: SWD (2021)185; SWD(2016)436 final])2   3-33.3%3.37Professional qualifications recognitionRecognition decisions w/o compensationProfessionals qualified in another EU MS applying to host MS, % over total decisions taken by host MS [source: Regulated professions database]26.745%Transposition - overall5 sub-indicators, sum of scores [source: Single Market Scoreboard]Below averageOn averageOn averageAbove averageInfringements - overall4 sub-indicators, sum of scores [source: Single Market Scoreboard]On averageBelow averageBelow averageOn averageInvestment protectionConfidence in investment protectionCompanies confident that their investment is protected by the law and courts of MS if something goes wrong, % of all firms surveyed [source: Flash Eurobarometer 504]5056%BankruptciesIndex (2015=100) [source: Eurostat, sts_rb_a]n.a.n.a.n.a.n.a.n.a.n.a.70.1 (2020)Business registrationsIndex (2015=100) [source: Eurostat, sts_rb_a]n.a.n.a.n.a.n.a.n.a.n.a.105.6Late paymentsShare of SMEs experiencing late payments in past 6 months, % [source: SAFE]34.643.950.9n.a.n.a.-32%45%EIF Access to finance index - LoanComposite: SME external financing over last 6 months, index from 0 to 1 (the higher the better) [source: EIF SME Access to Finance Index]0.370.420.240.2364.2%0.56 (2020)EIF Access to finance index - EquityComposite: VC/GDP, IPO/GDP, SMEs using equity, index from 0 to 1 (the higher the better) [source: EIF SME Access to Finance Index]0.130.120.110.122.9%0.18 (2020)% of rejected or refused loansSMEs whose bank loans’ applications were refused or rejected, % [source: SAFE]17.4615.611.712.737.1%1240.0%SME contractorsContractors which are SMEs, % of total [source: Single Market Scoreboard]7860656814.7%63%SME bidsBids from SMEs, % of total [source: Single Market Scoreboard]7774666912%70.8%HEADLINE INDICATORSEconomic structureRESILIENCEShortages/supply chain disruptionsStrategic dependenciesBusiness demographyAccess to financePublic procurement Investment dynamicsSINGLE MARKETCompliance - cooperation EC and MSBUSINESS ENVIRONMENT - SMEs 
 
 
 
 
 
 
 
 
  
 
 
ANNEX 11: PUBLIC ADMINISTRATION 
ANNEX 11: PUBLIC ADMINISTRATION 

capacity 

administrative 

Good 
enables 
economic  prosperity,  social  progress  and 
fairness. Public administrations at all government 
levels deliver crisis  response, ensure the provision 
of  public  services  and  contribute  to  building 
resilience  for  the  sustainable  development  of  the 
European economy.  

open-public-consultation 

Overall, the public administration in Hungary 
is  much  less  effective  than  the  average  in 
the  EU-27 (39).  Reform  strategies  in  Hungary`s 
public  administration  and  governance  are 
several  policy  areas. 
fragmented  between 
Although 
impact 
assessments 
legislative 
procedures  are  provided  for  in  the  law,  they  are 
not  routinely  applied  in  practice.  Instead,  rules  on 
expedited  procedures  are  followed  on  a  routine 
basis. This removes transparency, and circumvents 
parliamentary  discussions  or  evidence-based 
decision-making. The powers of local governments, 
including  their  financial  independence,  have  also 
been reduced.   

transparent 

and 

Graph A11.1: Open government data maturity 

cross-border  services,  as  well  as  for  the  overall 
index. 

fiscal 

institution 

independent 

Hungary  scores  low  on  selected  indicators 
measuring  government  transparency  and 
oversight institutions. The scope of activities of 
Hungary`s 
is 
narrower  than  that  of  the  average  EU  country. 
Moreover,  it  is  not  advanced  in  the  provision  of 
open  data  (Graph  A11.1),  thus  reducing  the 
potential  of public information to hold institutions 
accountable  to  citizens.  The  Commission`s  2021 
Rule of Law Report notes concerns over the lack of 
systematic  checks  and  the  lack  of  sufficient 
oversight of declarations of assets and interests.   

public 

administration 

The  human-resource  management  system  of 
Hungary’s 
has 
shortcomings.  Recruitment  to  public-sector  jobs 
is  opaque,  as  competitive  procedures  are  not 
compulsory.  The  turnover  of  senior  civil  servants 
following  a  change  in  government  is  relatively 
high, and the participation of civil servants in adult 
learning  is  also  low.  There  is  also  a  low  share  of 
public  administration  employees  with  tertiary 
education.  Gender  parity  in  senior  civil  service 
positions is also poor.  

Graph A11.2: Performance on evidence-based 
policy making indicators 

Source: Open Data Maturity | data.europa.eu 

There is room for improving the digitalisation 
of public services. The volume of public services 
provided in-person has decreased significantly. The 
share  of  e-government  users  is  above  the  EU 
average.  However,  Hungary  is  below  the  EU 
average  on  dimensions  of  the  e-government 
benchmark  indicators  such  as  transparency  and 

(39)  Worldwide Governance Indicators, 2020.  

(1) RIA: Regulatory Impact Assessment  
Source: OECD (iREG indicators) 

The  draft  Hungarian  RRP  aims  to  simplify 
administrative 
decision-making.  However, 
improving  evidence-based 
reforms  aiming  at 
policy making are missing. Even though, this is an 
area where there is visible room for improvement. 
In particular, there is room to improve stakeholder 

46 

00.10.20.30.40.50.60.70.80.9HUEU27 averageOpen Data PolicyOpen Data QualityOpen Data PortalOpen Data Impact00.20.40.60.811.21.41.61.8HUEU27averageHUEU27averageMethodologyRIAOversightStakeholder consulationSystematic adoptionEx-post evaluationTransparency 
 
   
 
                                                 
   
 
consultation and ex-post evaluations of legislation 
(Graph A11.2).  

selected 

ranking  on 
indicators 

fiscal 
Hungary’s 
framework 
is  below  the  EU 
average.  This  is  the  case  for  both  Hungary`s 
national  medium-term  budgetary  framework  and 
the strength of its fiscal rules indices. Despite the 
introduction  of  stronger  rule  monitoring  and 
aligning  more  fiscal  rules  with  EU  regulations, 
there  is  still  room  to  further  develop  monitoring 
and  forecasting  of  the  fiscal  situation.  There  is 
the  public 
also 
procurement indicator, given the high shares of 

further  develop 

room 

to 

contracts  awarded  where  there  was  just  a  single 
bidder and a relatively long mean decision-making 
period for contract awards.   

The  justice  system  performs  efficiently  but 
there  are  concerns  about  independence.  The 
estimated time needed to resolve litigious civil and 
commercial  cases  at  first  instance  is  low  (165 
days in 2020), as is the estimated time to resolve 
administrative cases at first instance (110 days in 
2020). The overall quality of the justice system is 
good:  digital  tools  are  broadly  used  in  courts,  but 
there  are  concerns  over  the  inclusiveness  of  the 
legal  aid 
judicial 
independence persist (40).    

scheme.  Concerns  over 

Table A11.1: Public Administration Indicators - Hungary 

(*) High values stand for good performance barring indicators # 7 and 8. 
(**) Measures the user centricity (including for cross-border services) and transparency of digital public services as well as the 
existence of key enablers for the provision of those services."         

Source: ICT use survey, Eurostat (# 1); E-government benchmark report (# 2); Open data maturity report (# 3); Fiscal Governance 
Database (# 4, 9, 10); Labour Force Survey, Eurostat (# 5, 6, 8), European Institute for Gender Equality (# 7), Single Market 
Scoreboard public procurement composite indicator (# 11); OECD Indicators of Regulatory Policy and Governance (# 12).           

(40)  For more detailed analysis of the performance of the justice 
system in Hungary, see the 2022 EU Justice Scoreboard 
(forthcoming) and the country chapter for Hungary of the 
Commission’s 2022 Rule of Law Report (forthcoming). 

47 

HU20172018201920202021EU27159.067.064.070.081.070.82nananana66.270.93nananana57.781.1436.451.451.451.4na56.8533.836.638.841.245.455.3612.112.511.310.88.518.6751.063.264.263.462.621.8815.316.315.115.515.821.390.550.550.550.55na0.72100.70.80.80.8na1.511-3.02.0-0.31.7na-0.7121.27nana1.28na1.7Index of regulatory policy and governance practices in the areas of stakeholder engagement, Regulatory Impact Assessment (RIA) and ex post evaluation of legislation Educational attainment level, adult learning, gender parity and ageingOpen government and independent fiscal institutionsParticipation rate of public administration employees in adult learning (3)Gender parity in senior civil service positions (4)Share of public sector workers between 55 and 74 years (3)E-government Public Financial Management Evidence-based policy makingIndicator (1)Medium term budgetary framework indexStrength of fiscal rules indexPublic procurement composite indicatorShare of individuals who used internet within the last year to interact with public authorities (%)2021 e-government benchmark´s overall score (2) 2021 open data maturity indexScope Index of Fiscal InstitutionsShare of public administration employees with tertiary education, levels 5-8  (3) 
  
                                                 
 
  
 
 
FAIRNESS 
FAIRNESS 
ANNEX 12: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
ANNEX 12: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
THE EUROPEAN PILLAR OF SOCIAL RIGHTS  
THE EUROPEAN PILLAR OF SOCIAL RIGHTS  

The European Pillar of Social Rights provides 
for  upward  convergence 
the  compass 
towards better working and living conditions 
in  the  EU.  The  implementation  of  its  twenty 
principles on equal opportunities and access to the 
labour  market,  fair  working  conditions,  social 
protection  and  inclusion,  supported  by  the  2030 
EU  headline  targets  on  employment,  skills  and 
poverty  reduction,  will  strengthen  the  EU’s  drive 
towards  a  digital,  green  and  fair  transition.  This 
annex provides an overview of Hungary’s progress 
in achieving the goals under the European Pillar of 
Social Rights. 

Table A12.1: Social Scoreboard for Hungary 

(1) Update of 29 April 2022. Members States are classified on 
the Social Scoreboard according to a statistical methodology 
agreed with the EMCO and SPC Committees. It looks jointly at 
levels and changes of the indicators in comparison with the 
respective EU averages and classifies Member States in seven 
categories. For methodological details, please consult the 
Joint Employment Report 2022. Due to changes in the 
definition of the individuals' level of digital skills in 2021, 
exceptionally only levels are used in the assessment of this 
indicator; NEET: neither in employment nor in education and 
training; GDHI: gross disposable household income. 

Source: European Commission, Eurostat 

lower 

The  labour  market  in  Hungary  has  been 
recovering  strongly,  but  the  labour  market 
participation  of  women,  young  people  and 
vulnerable  groups  remains  a  challenge.  At 
78.8% in 2021, Hungary’s employment rate is well 
above  the  EU  average  (73.1%).  However,  the 
gender  employment  and  pay  gaps  in  the  country 
have risen in recent years. The employment impact 
of parenthood is among the highest in the EU, and 
labour  market 
contributes  to  women’s 
participation.  This  is  partly  due  to  the  scarcity  of 
places  in  nurseries  and  kindergartens  (76%  of 
settlements  were  without  crèche  places  in  2020), 
and the possibility for Hungarians to take parental 
leave  for  up  to  3  years.  The  participation  of 
children below the age of 3 in childcare is among 
the lowest in the EU (16.9% vs 35.3% in the EU in 
2019). (41)  The  investment  in  3300  new  crèche 
places  as  part  of  Hungary’s  RRP  will  help  to 
address this challenge. The share of young people 
who  are  neither  in  employment,  nor  in  education 
and  training  (NEET)  is  relatively  low  except  for 
women, who are affected nearly twice as often as 
men. At the same time, the disability employment 
gap  widened  to  31.2  percentage  points  (pps)  in 
2020,  while  the  employment  rate  of  Roma  was 
25.5  pps  below  the  national  average  for  the 
population  aged  15-64  in  the  third  quarter  of 
(based  on  national  data).  Weaknesses 
2019 
remain  in  the  scope  and  effectiveness  of  active 
labour  market  policies,  particularly  in  the  public 
works  scheme  which  remains  oversized,  though 
helps 
gradually 
participants  to  find  employment  on  the  primary 
labour  market.  The  duration  of  unemployment 
benefits  is  among  the  shortest  in  the  EU  (3 
months).  EU  cohesion  policy  funds  will  support 
measures  to  strengthen  the  provision  of  active 
labour  market  policies,  with  a  special  focus  on 
young people. Social  dialogue in Hungary remains 
among  the  weakest  in  the  EU  with  no  progress 
observed. 

decreasing, 

seldom 

and 

Early  school  leaving,  especially  among  the 
Roma,  and  poor  performance  in  basic  skills 
pose  significant  challenges.  Hungary`s  early-
school-leaving rate is higher than the EU  average 
(12.0% vs 9.7% in 2021; see Annex 13 for further 

(41)  Data for 2020 could be distorted by COVID-19, because 

public health measures might have forced some childcare 
institutions to close temporarily. 

48 

12.049.011.710.64.278.84.11.3132,819.421.744.131.24.910.50.7Critical situationTo watchWeak but improvingGood but to monitorOn averageEqual opportunities and access to the labour marketEarly leavers from education and training(% of population aged 18-24) (2021)Youth NEET(% of total population aged 15-29) (2021)Gender employment gap (percentage points) (2021)Income quintile ratio (S80/S20) (ratio) (2020)Individuals' level of digital skills (% of population 16-74) (2021)Dynamic labour markets and fair working conditionsSocial protection and inclusionAt risk of poverty or social exclusion for children (in %) (2020)Disability employment gap (ratio) (2020)Better than averageAt risk of poverty or social exclusion (in %) (2020)Employment rate(% population aged 20-64) (2021)Unemployment rate(% population aged 15-74) (2021)Long term unemployment(% population aged 15-74) (2021)GDHI per capita growth (2008=100) (2020)Best performersImpact of social transfers (other than pensions) on poverty reduction (% reduction of AROP) (2020)Children aged less than 3 years in formal childcare (% of under 3-years-olds) (2020)Self-reported unmet need for medical care (% of population 16+) (2020)Housing cost overburden (% of population) (2020) 
 
 
 
  
 
 
                                                 
 
 
analysis).  The  share  of  people  with  at  least  basic 
digital  skills  was  49%  in  2021  compared  to  54% 
in the EU. The share of adults participating in adult 
learning  is  low,  at  5.9%  in  2020  compared  to 
10.8%  in  the  EU,  and  it  is  significantly  lower 
among  the  low-skilled  and  the  unemployed. (42) 
Strengthening  the  quality  and  inclusiveness  of 
education  and  training  at  all  levels  is  key  for 
helping  Hungary  to  reach  the  2030  EU  headline 
targets on skills and employment. 

While  the  share  of  Hungarians  at  risk  of 
poverty  or  social  exclusion  has  decreased  in 
recent years, the depth of poverty increased 
markedly. Severe material and social deprivation, 
although decreasing for the general population, is 
still one of the highest in the EU (10.7% vs 6.8%) 
and  is  especially  high  among  children  (16.6%  vs 
8.3%  in  the  EU).  The  depth  of  poverty  increased 
from 16.7% in 2017 to 27.9% in 2020, making it 
one  of  the  highest  in  the  EU.  Households  without 
stable employment also faced declining adequacy 
in  the  social  safety  net  over  the  past  decade  as 
the real value of the minimum income fell by 39% 
impact  of  social  transfers 
since  2010.  The 
(excluding  pensions  and  in-kind  transfers)  on 
reducing poverty is relatively high (44.9% in 2020 
vs 32.2% in the EU), it is mainly driven by family 
benefits  during  parental  leave  while  the  poverty-
reducing  impact  of  other  benefits  is  low.  There  is 
thus scope for stronger policy action by Hungary to  
reach  the  2030  EU  headline  target  on  poverty 
reduction. To foster equal opportunities and social 
inclusion,  Hungary’s  RRP  plans 
infrastructure 
projects 
the  300  most  deprived 
municipalities,  which  have  a  high  percentage  of 
children  and  Roma.  These  projects  will  be 
supported  by  actions  financed  by  the  European 
Social Fund Plus. 

targeting 

(42)  According to the Labour Force Survey, the indicator on adult 
learning participation over the previous four weeks is used in 
the country report, rather than the indicator on learning over 
the previous 12 months, as Adult Education Survey (AES) 
data for the 12-month indicator are only available for 2016 
at the moment, while the new Labour Force Survey (LFS) 
indicator agreed for use in the social scoreboard and as 
2030 headline target on skills will only be available in 2023 

49 

 
 
                                                 
ANNEX 13: EDUCATION AND SKILLS 
ANNEX 13: EDUCATION AND SKILLS 

This  Annex  outlines  the  main  challenges  for 
Hungary’s  education  and  training  system  in 
light of the EU-level targets of the European 
Education  Area  Strategic  Framework  and 
other  contextual  indicators,  based  on  the 
analysis  from  the  2021  Education  and 
Training  Monitor.  Hungary’s  education  and 
training  system  struggles  with  quality  and  equity 
challenges  that  risk  to  worsen  due  to  the 
pandemic.  Hungary  lags  significantly  behind  the 
EU  average  and  the  EU-level  targets  in  terms  of 
basic  skills,  early  leavers  from  education  and 
training and tertiary education attainment. 

Participation  in  early-childhood  education 
and  care  is  in  line  with  the  EU  average,  but 
access  is  unbalanced, and  teacher  shortages 
raise  quality 
In  2020,  32%  of 
settlements  had  no  kindergartens.  Access  to 
quality  early-childhood  education  and  care  is 
hampered  by  increasing  shortage  of  pre-school 
teacher, which a 2020 reform aimed to address by 

issues. 

allowing non fully qualified teaching staff to work 
with  children  in  the  afternoon.  This  is  a  serious 
step backwards in quality standards. 

Educational  outcomes  in  Hungary  are  below 
the EU average. At the age of 15, mean levels of 
basic  skills  are  significantly  below  EU  averages, 
and  have  even  decreased  since  2009,  with  the 
sharpest  declines  occurring  in  science.  The  share 
of  low-achieving  school  pupils  in  Hungary  is  well 
above  the  EU  average  in  all  three  areas  tested. 
According  to  the  2019  national  survey,  the 
in 
competence 
vocational  secondary  schools  showed  little  or  no 
progress compared to their level at grade 8.  

level  of  pupils  at  grade  10 

The  weaknesses  in  education  outcomes  are 
partly  due  to  the  reduced  general-education 
content in this type of schools and partly to 
school  population. 
their  disadvantaged 

Table A13.1: EU-level targets and other contextual indicators under the European Education Area 
strategic framework 

(1) The 2018 EU average on PISA reading performance does not include ES; b = break in time series, u = low reliability, : = not 
available; Data is not yet available for the remaining EU-level targets under the European Education Area strategic framework, 
covering underachievement in digital skills, exposure of vocational educational training graduates to work based learning and 
participation of adults in learning. 

Source: Eurostat (UOE, LFS); OECD (PISA). 

50 

96%90.7%91.9%92.9%201992.8%2019Reading< 15%27.5% 20.4%25.3%201822.5%2018Mathematics< 15%28.0% 22.2%25.6%201822.9%2018Science< 15%26.0% 21.1%24.1%201822.3%2018< 9 %11.6%b11.0%12.0%9.7%Men12.0%b12.5%12.3%11.4%Women11.2%b9.4%11.6% 7.9%Cities6.7%b9.6%6.1% 8.7%Rural areas15.9%b12.2%19.1%10.0%Native11.6%b10.0%11.8%8.5%EU-born:b, u20.7%:u21.4%Non EU-born:b, u23.4%:u21.6%45%32.1%36.5%32.9%41.2%Men26.1%31.2%27.0%35.7%Women38.4%41.8%39.2%46.8%Cities47.3%46.2%53.0%51.4%Rural areas17.7%26.9%16.4%29.6%Native32.1%37.7%32.7%42.1%EU-born32.4%32.7%36.3%40.7%Non EU-born:u27.0%43.3%34.7%37.4% 38.3%45.0%201938.9%2019Share of school teachers (ISCED 1-3) who are 50 years or overBy country of birthTotalBy genderBy degree of urbanisationBy country of birthEarly leavers from education and training (age 18-24)Tertiary educational attainment (age 25-34)Participation in early childhood education (age 3+)Low achieving 15-year-olds in:TotalBy genderBy degree of urbanisation20152021IndicatorTargetHungaryEU27HungaryEU27 
 
 
 
 
  
 
 
Hungary also has the largest urban/rural gap of all 
OECD  countries  in  education  outcomes (43),  before 
accounting  for  socioeconomic  status.  The  low 
effectiveness  and  fairness  in  the  school  system 
are likely to be linked to the low level of curricular 
autonomy,  the  lack  of  socioeconomic  diversity 
within schools and low teacher salaries (44). 

Graph A13.1: Mean science performance 

Source: PISA 2009-2018 

is  a  strong 
Socio-economic  background 
predictor  of  pupil  performance  and  there 
continue  to  be  large  differences  between 
schools  in  Hungary.  Schools  in  Hungary  are 
characterised  by 
the  similar  socio-economic 
background  of  their pupils,  with  concentrations  of 
disadvantaged  pupils  in  certain  schools.  A  high 
share  of  Roma  pupils  attend  segregated  primary 
schools.  The  gap  in  pupils'  performance  between 
socio-economically 
and 
disadvantaged  schools  is  the  largest  in  the  EU  (a 
gap  of  169  points  in  Hungary  against  an  EU-
average  gap  of  137  scores).  Performance-based 
selection in Hungarian schools starts at the age of 
10,  leading  to  the  separation  of  underachieving 
pupils  from  their  high-achieving  peers.  This,    is 
likely  to  be  a  factor  in  the  large  share  of  low 
performers in Hungary. The 2019 reform cancelled 

advantaged 

(43)  Echazarra, A. and T. Radinger (2019), “Learning in rural 

schools: Insights from PISA, TALIS and the literature”, OECD 
Education Working Papers, No. 196, 
http://dx.doi.org/10.1787/8b1a5cb9-en 

(44)  Education and Training MONITOR 2018, Luxembourg: 
Publications Office of the European Union, 2018. 
(https://ec.europa.eu/education/sites/education/files/documen
t-library-docs/volume-1-2018-education-and-training-
monitor-country-analysis.pdf) 

51 

towards 

to  progress 

the  option  for  students  in  vocational  training 
the  general 
schools 
in  the  formal 
secondary-school-leaving  exam 
school 
reduced 
system.  This, 
vocational-training-school  students’  options  for 
further  study  and  careers.  Inequality  in  education 
reduces the possibility of social mobility: out of all 
EU countries, low-income families in Hungary have 
the lowest chances of ever approaching the mean 
income in their country. 

substantially 

Hungary’s  early-school-leaving  rate  remains 
above the EU average. In 2021, the percentage 
of  early  leavers  from  education  and  training 
increased  to  12.0%.  This  percentage  is  higher  in 
the  least  developed  districts  and  among  Roma 
(where  it  is  as  high  as  65.3%).  The  concentration 
of  disadvantaged  pupils  in  certain  schools  and 
school  types  –  especially  vocational  training 
schools – and pressing teacher shortages makes it 
difficult to keep pupils in school and give them the 
personalised support they need. The distribution of 
pupils  at  risk  of  dropping  out  varies  greatly  by 
school type and region. In the three most affected 
counties, 10-15% of pupils are at risk of dropping 
out. 

is 

The  shortage  of  teachers 
in  Hungarian 
increasingly  challenging.  The 
schools 
teaching  workforce  is  ageing:  in  2019,  45.0%  of 
Hungarian  teachers  were  aged  50  or  over.  Initial 
teacher  education  cannot  meet  the  demand  for 
teachers:  dropout  rates  from  these  courses  are 
high and less than half of graduates from teacher 
education  actually  enter  the  profession.  Teacher 
shortages are the most acute: (i) in disadvantaged 
areas;  (ii)  for  mathematics,  science  subjects  and 
foreign languages; and (iii) in VET. These shortages 
are also partly due the high proportion (49.5%) of 
small  schools  in  Hungary  (with  less  than  150 
pupils).  Small  schools  need  to  maintain  a  full 
teaching  staff  regardless  of  the  number  of 
children,  resulting  in  the  uneven  distribution  of 
teachers  across  the  country.  Schools  with  a 
disadvantaged  profile  tend  to  suffer  particularly 
from  the  lack  of  qualified  teaching  staff.  Low 
salaries  for  teachers  are  one  factor:  these  are 
equivalent  to  only  58%-66%  of  the  salaries  of 
other tertiary education graduates, and even lower 
for  starting  teachers  (50-55%).  In  addition,  the 
number  of  teaching  hours  per teacher in Hungary 
is  the  highest  in  Europe  In  the  absence  of 
sufficient  support  staff,  teachers  also  need  to 
perform  non-teaching  duties  such  as  after-school 
care.  Moreover,  the  centralised  management  of 

 
 
                                                 
 
schools 
autonomy and tools to improve teaching quality. 

leaves  school  heads  with 

limited 

in  a 

(88.1%)  exceeds 

Participation  in  higher  education  is  low, 
resulting 
lack  of  highly  skilled 
professionals.  Hungary  has  one  of  the  lowest 
rates  of  the  population  aged  25-34  holding  a 
tertiary  degree.  The  employment  rate  of  recent 
the  EU 
tertiary  graduates 
average  (83.7%).  The  pool  of  entrants  to  tertiary 
education  has  been  shrinking  in  recent  years, 
reflecting  demographic 
trends,  poor  school-
education  outcomes,  and  a  reduction  in  state-
funded places. The number of applicants to higher 
education fell from 102 000 in 2011 to 69 000 in 
2021  and  admissions  decreased  from  67  000  to 
51  000  during  this  time.  Around  a  third  of  full-
time  students  pay  fees  for  their  education;  and 
this proportion is higher among part-time students. 
Dropping out  remains frequent: more than a third 
of  bachelor’s  students  do  not  graduate,  with 
dropout rates especially high in IT, engineering and 
science  programmes.  The  number  of  new 
graduates in science and engineering per thousand 
people  aged  25-34  has  been  decreasing  since 
2015  and  remains  below  the  EU  average.  The 
management  and  financing  of  most  public 
universities  has  been  entrusted  to  private  trust 
funds.  Important  decisions  about  the  universities 
are  made  by  a  newly  created  board  of  trustees, 
whose members are appointed by the government 
for  life.  This  may  raise  concerns  over  academic 
freedom. 

52 

 
 
 
 
 
 
ANNEX 14: HEALTH AND HEALTH SYSTEMS 
ANNEX 14: HEALTH AND HEALTH SYSTEMS 

Especially  relevant  in  light  of  the  ongoing 
COVID-19 pandemic, resilient healthcare is a 
prerequisite  for  a  sustainable  economy  and 
society.  This  Annex  provides  a  snapshot  of  the 
healthcare sector in Hungary.  

Life  expectancy  in  Hungary  in  2019  was 
almost 5 years below the EU average, having 
fallen  by  nearly  10  months  in  2020  due  to 
COVID-19. As of 17 April 2022, Hungary reported 
4.58  cumulative  COVID-19  deaths  per  1  000 
inhabitants and 193 confirmed cumulative COVID-
19  cases  per  1  000  inhabitants.  Before  the 
pandemic,  mortality  rates  from  treatable  causes 
were much higher than the EU average. This could 
point to issues with the quality and accessibility of 
healthcare  services.  Partly  as  a  result  of  the  high 
prevalence  of  risk  factors,  cancer  mortality  in 
Hungary was the highest in the EU in 2019.   

Graph A14.1: Life expectancy at birth, years 

the 

And 

uneven 

Against  this  backdrop,  certain  physician  and 
face  more  severe 
nursing  specialities 
shortages. 
geographic 
distribution  of  healthcare  workers  continues  to 
hamper  access  to  care  for  residents  in  less=well 
populated  and  poorer  regions  of  Hungary.  More 
recently,  disruptions  to  the  delivery  of  health 
services 
caused  by  COVID-19  may  have 
aggravated  accessibility  challenges,  in  particular 
for  patient  groups  requiring  chronic  disease 
management and elective surgery. Consumption of 
antimicrobials  in  Hungary  is  lower  than  the  EU 
average. 

Graph A14.2: Projected increase in public 
expenditure on health care over 2019-2070 
(reference scenario) 

Source: European Commission/ EPC (2021)  

Source: Eurostat 

Health  spending  relative  to  GDP  in  Hungary 
remains  well  below  the  EU  average.  Public 
funding  accounts  for  two thirds  of  all  health  care 
expenditure.  This  share  is  below  the  EU  average 
and reflects high levels of out-of-pocket spending 
concentrated 
and 
pharmaceuticals.  Public  expenditure  on  health  is 
projected  to  increase  by  0.9  percentage  points  of 
GDP by 2070, in line with the EU average.    

outpatient 

care 

on 

The  government  has  begun  to  implement 
measures to  alleviate persistent  shortage  in 
the  healthcare  workforce.  Shortages  of  health 
staff  present  a  chronic  challenge.  Although  the 
number  of physicians  and  nurses  is  low,  numbers 
of  health  graduates  increased  significantly  in 
recent  years.  At  the  same  time,  the  government 
began implementing policies, including substantial 
salary  increases,  to  improve  the  recruitment  and 
retention  of  healthcare  professionals  within  the 
public system.  

53 

80.980.981.081.380.476.276.076.276.575.720162017201820192020EUHungary6.64.80.90.902468EUHungary% of GDP20192070increase 
 
  
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A14.1: Key health indicators 

(1) Notes: Doctors' density data refer to practising doctors in all countries except FI, EL, PT (licensed to practice) and SK 
(professionally active). Nurses' density data refer to practising nurses in all countries (imputation from year 2014 for FI) except IE, 
FR, PT, SK (professionally active) and EL (nurses working in hospitals only). More information: https://ec.europa.eu/health/state-
health-eu/country-health-profiles_en  

Source: Eurostat Database; except: * Eurostat Database and OECD, ** ECDC. 

54 

20162017201820192020EU average (latest year) Treatable mortality per 100 000 population (mortality avoidable through optimal quality healthcare)176.0179.0175.992.0 (2017)Cancer mortality per 100 000 population345.3341.0335.6252.5 (2017)Current expenditure on health, % GDP 7.06.86.66.49.9 (2019)Public share of health expenditure, % of current health expenditure68.168.869.968.379.5 (2018)Spending on prevention, % of current health expenditure 3.23.03.13.22.8 (2018)Acute care care beds per 100 000 population427.9427.1423.5420.7387.4 (2019)Doctors per 1 000 population *3.23.33.43.53.8 (2018)Nurses per 1 000 population *6.46.56.66.68.2 (2018)Consumption of antibacterials for systemic use in the community, daily defined dose per 1 000 inhabitants per day **13.313.413.713.310.014.5 (2020) 
 
 
 
 
   
 
 
ANNEX 15: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 
ANNEX 15: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 

Graph A15.2: Labour productivity, EU-27, 
Hungary´s NUTS 2 regions, 2000-2019 

is  an 

The  regional  dimension 
important 
factor  when  assessing  economic  and  social 
developments  in  Member  States.  Taking  into 
account  this  dimension  enables  a  well-calibrated 
and targeted policy response that fosters cohesion 
and  ensures  sustainable  and  resilient  economic 
development across all regions. 

Graph A15.1: GDP per capita (2010) and GDP 
growth (2010-2019) in Hungary 

(1) Unit: real GVA in MM EUR (2015 prices) by employment in 
thousands of persons. 
(2) The light red circle shows the capital city region. The blue 
circles show the remaining NUTS2 regions. 
(3) The green diamond shows the national average. The 
purple line shows the EU27 average. 
Source: European Commission 

Hungarian regions have been catching up with 
the  rest  of  the  EU  since  Hungary’s  accession, 
However, GDP per head is still only around 50% of 
the EU average in four regions while it is 151% of 
the  average  in  the  capital  region  of  Budapest. 
Labour  productivity  ranges  between  58%  of  the 
EU  average in Észak-Alföld and 71% in Budapest. 
Territorial  disparities  between,  but  also  within 
regions  are  particularly  large  at  the  level  of  the 
country’s  197  districts  (LAU  1).  There  are  36 
districts  in  different  regions  characterised  by 
multiple  disadvantages,  which  the  Government 
Regulation  290/2014  classified  as 
‘to  be 
developed through complex programmes’. 

Source: European Commission 

Except  for  the  capital  region  of  Budapest, 
GDP per capita (PPS) in all Hungarian regions 
remains  below  75%  of  the  EU  average. 
Internal 
to  be 
regional  disparities  continue 
significant,  driven  by  labour  productivity  gaps 
between  the  more  developed  and  the 
less 
developed regions of the country. As productivity is 
the  key  determinant  of  economic  growth  and 
prosperity  over  the  long  term,  this  gap  threatens 
not only to slow down the country’s contribution to 
the  EU’s  green  and  digital  objectives  but  also  be 
detrimental to territorial cohesion. 

Table A15.1: Hungary, selected indicators at regional level 

Source: Eurostat, *EDGAR Database. 

55 

NUTS 2 RegionGDP per head (PPS)Productivity (GVA (PPS) per person employed)Real productivity growthGDP per head growthPopulation growthUnemployment ratePopulation with high educational attainmentCO2 emissions from fossil fuels  per headInnovation performanceEU27=100, 2019EU27=100, 2018Avg % change on preceding year, 2010-2019Avg % change on preceding year, 2010-2019Total % change, 2011-2019% of active population, 2020% of population aged 30-34, 2017-2019tCO2 equivalent, 2018EU27=100European Union1001001.001.391.87.139.47.2100.0Magyarország73661.213.23-1.94.333.15.267.9Budapest151711.082.481.73.354.74.097.6Pest58660.842.587.53.332.26.266.0Közép-Dunántúl67651.764.16-2.12.824.67.257.7Nyugat-Dunántúl71681.783.640.92.426.04.254.8Dél-Dunántúl50591.333.21-6.85.324.65.148.9Észak-Magyarország49631.564.05-7.85.026.411.049.1Észak-Alföld47580.913.18-4.37.325.54.150.9Dél-Alföld53601.023.66-5.74.728.44.357.3 
 
 
 
 
 
 
  
 
Graph A15.3: EU Regional Competitiveness Index of 
Hungary's less developed regions 

ICT usage, such  as  mobile  broadband  connection 
(82% in the capital vs. 72% in the Dél-Alföld), use 
of  cloud  services  (25,  7%  in  Közép-Dunántúl,  vs. 
15%  in  Észak-Alföld)  or  the  use  of  industrial  and 
service robots (e.g. 6.1% and 2.6% respectively in 
Nyugat-Dunántúl, vs. less than 1% in some of the 
least developed regions) (45). 

Graph A15.4: Territories most affected by climate 
transition in Hungary 

Source: European Commission 

(BAZ)  and  40% 

The  proportion  of  these  least  developed 
districts is particularly high in some counties 
in the peripheries. For example 69% of districts in 
Szabolcs-Szatmár-Bereg,  50%  in  Borsod-Abaúj-
Zemplén 
is 
classified as disadvantaged. In contrast,  there are 
no such districts in Nyugat-Dunántúl. The group of 
36 
remained 
unchanged since 2014 as the challenges affecting 
them have proven to be persistent, and there have 
been  no  complex  programmes  implemented  to 
address their problem. 

least  developed  districts  has 

in  Hajdú-Bihar 

low  due 

The  competitiveness  of  Hungary’s  four  least 
developed  regions  remains 
to 
infrastructure  gaps,  deficiencies  in  human  capital 
(health,  education  levels)  and  low  labour  market 
limit  the  growth 
efficiency.  These  handicaps 
potential  of  the  least  developed  regions.  The 
innovation  performance  of  the  capital  Budapest 
stands  out  and  is  close  to  the  EU  average,  while 
the  other  regions  are  only  emerging  innovators, 
significantly lagging behind Budapest.  

On  the  digital  transition,  the  uptake  of 
information  and  communications  technology 
(ICT)  is  relatively  high  in  Hungary,  but  regional 
differences  remain.  For  example,  the  use  of  the 
internet  to  interact  with  public  authorities  varies 
from 51% in three of the least developed regions 
to 79% in the capital region. Differences between 
regions  are moderate  with  regard  to  the  share  of 
internet  access,  while  more 
households  with 
pronounced  regarding  mobile  broadband  access 
(70% in Budapest against 52.8% in the Dél-Alföld 
2021).  

Source: European Commission 

to 

climate 

transition 

Several Hungarian regions face challenges in 
the 
neutrality. 
Greenhouse-gas emissions per capita are higher in 
Hungary  than  the  EU  average.  Three  counties  in 
particular  will  need  to  make  greater  efforts  to 
achieve climate neutrality: Baranya (relying heavily 
on  energy-intensive  industries),  Heves  (which  has 
a coal power plant that is the biggest CO2 emitter 
in  Hungary  and  one  coal  mines)  and  BAZ  (with 
cities having the highest PM load in Hungary and a 
crucial  lignite  mine  of  the  Mátra  lignite  power 
plant).  Addressing  the  social  and  employment 
impact  of 
transition  presents  a 
challenge for Hungary. 

the  green 

strong 

relevant 
show 

for  human  capital 
Indicators 
development 
territorial 
differences.  Hungary’s  education  system shows 
significant  disparities (46).  By  the  age  of  12,  there 
is  a  five-fold  difference  between  the  best  and 
worst  performing  counties  in  the  skills  levels  of 
students  (6%  in  Vas  county  vs  26%  in  BAZ).  The 
gap  between  the  best-  and  worst-performing 
districts  in  terms  of  basic  skills  is  significant  and 

On  the  digital  integration  of  enterprises, 
regional  differences  are  more  stark  when 
taking into account more advanced forms of 

(45)  Source: Hungarian Central Statistical Office 

(46)  Hungarian Academy of Sciences, 2021 Indicator System of 

the Hungarian public education (in Hungarian) 
https://bit.ly/3kIOM2R  

56 

 
 
 
                                                 
increases  by  school  grade  tested  (6th,  8th,  10th 
grade). (47)  Further  education  indicators  throughout 
school  education  (e.g.  early-school  leaving  and 
educational  attainment)  show  similar  territorial 
differences (48).  In  addition  there  is  also  a  strong 
urban-rural  divide,  for  example  the  early  school 
leaving  rate  is  6.8%  in  cities  and  17.9%  in  rural 
regions.  There  are  regional  disparities  in  health 
status as well (49). There is a pronounced western-
eastern, urban-rural and centre-periphery divide in 
health  status  of  Hungarians.  Life  expectancy  is  5 
years  higher  in  Budapest  than  in  the  least-
developed  counties.  Medical  staff  shortages (50) 
(especially GPs) and lack of access to quality care 
contribute to these disadvantages. 

rates  are 
The  highest  unemployment 
recorded  in  the  less  developed  regions  of 
Észak-Alföld  and  Dél-Dunántúl 
(7.1%  and 
5.1% respectively). The employment rate is above 
or  near  the  EU  average  in  all  regions.  However, 
there is a 9.1 pp difference between the best- and 
worst-performing  regions  outside  Budapest.  The 
share  of  people  at  risk  of  poverty  or  social 
exclusion is the lowest in Közép-Dunántúl and the 
highest  in  Észak-Magyarország,  with  close  to  a 
three-fold  difference  between  these  two  regions 
(10.1% vs 28.1% in 2021) (51).  Between 2011 and 
2020,  the  population  shrunk  and  there  was  a 
negative net migration in the four least developed 
NUTS 2 regions, while population grew only in the 
capital  and  in  Nyugat-Dunántúl.  As  for  the  effect 
of  the  COVID  pandemic,  the  mortality  rate  was 
higher  in  the  more  developed  regions,  while 
socioeconomic  consequences  differed  slightly 
across regions. 

(47)  Source: Oktatási Hivatal, Országos Kompetenciamérés, 

available at https://bit.ly/3LLt4ad  

(48)  Source: Hungarian Central Statistical Office, 
https://www.ksh.hu/thm/2/indi2_2_4.html  

(49)  Tóth, G., Bán, A., Vitrai, J. and Uzzoli, A. (2018). Regional 

Differences in Morbidity and Mortality of Acute Myocardial 
Infarction. Területi Statisztika 58, 346-379. Available at 
https://bit.ly/3kIXiyO 

(50)  OECD (2021). State of Health in the EU: Hungary Country 
Health Profile 2021. Available at https://bit.ly/3sh2D4A  

(51) Source: Hungarian Central Statistical Office, 

https://www.ksh.hu/stadat_files/ele/hu/ele0017.html  

57 

 
 
                                                 
MACROECONOMIC STABILITY 
MACROECONOMIC STABILITY 
ANNEX 16: KEY FINANCIAL SECTOR DEVELOPMENTS 
ANNEX 16: KEY FINANCIAL SECTOR DEVELOPMENTS 

This  Annex  provides  an  overview  of  key 
developments  in  Hungary’s  financial  sector. 
Banks  remain  the  heavyweights  of  Hungary’s 
domestic  financial  sector.  Total  banking  sector 
assets accounted for 112.1% of GDP in Q3 2021. 
The  five  largest  banks  in  Hungary  own  about 
50.1%  of 
total  banking  sector  assets.  The 
domestic  ownership  of  local  lenders  fluctuated 
substantially  over  the  past  decade  and  reached 
58.6% in Q3 2021. The market-funding ratio was 
rather low at 35.7% in 2020, as bank loans remain 
by  far  the  most  significant  form  of  financing  for 
most  companies.  The  issuance  of  green  bonds 
started  in  2020,  while  the  central  bank  has 
integrate 
to 
launched 
environmental aspects into financing.  

initiatives 

some 

The  Hungarian  banking  system  is  stable  and 
resilient.  The  bank  solvency  ratio  has  remained 
stable since 2018, at 18.2% in Q3 2021 (vs 19.3% 
in  the  EU).  Banking  sector  profitability  is  among 
the  highest  in  the  EU  with  a  return  on  equity  of 
14.1% in Q3 2021. Asset quality has improved for 
both  corporates  and  households  with  the  non-
performing loans ratio declining to 3% in Q3 2021 
(vs  2.1%  in the  EU).  The cost-to-income-ratio  has 
steadily  declined  since  2017.  Banks  have  also 
benefitted  from  abundant  central  bank  liquidity, 
which  stood  at  roughly  9.5%  of  total  liabilities  in 
2020.  

The  macroeconomic  environment  creates 
challenges for banks in 2022. (i) Funding costs 
have  increased  due  to  rising  inflation,  monetary 
tightening,  and  Russia’s  invasion  of  Ukraine.  As 
Russian  and  Ukrainian  financial  markets  were 
frozen,  foreign  investors  sold  Hungarian  assets  in 
larger  quantities  to  reduce  their  overall  exposure 
to  the  region.  This 
led  to  strong  currency 
depreciation  and  yield  increases.  Until  June  2022 
nearly  500  thousand  mortgage  borrowers  with 
flexible  rates  can  pay  their  instalments  according 
to the interest rate applicable on 27 October 2021. 
Since  then, the  3-month interbank  rate  rose  from 
2%  to  some  6.8%,  thus  the  temporary  cap  on 
mortgage  rates  depresses  the  interest  margin  of 
banks.  (ii)  Following  the  expiration  of  the  cap  on 
mortgage rates and the simultaneous phase out of 
the  COVID-19-related  moratoria  for  vulnerable 
borrowers,  the  interest  margins  of  banks  can 
recover  but  the  volume  of  non-performing  loans 
could also increase. (iii) Due to rising yields, banks 
also  face  losses  on  their  large  government  bond 

portfolio,  which  amounted  to  15.7%  of  banking 
sector assets in March 2022. (iv)  A medium-sized 
Hungarian  bank  that  was  ultimately  owned  by  a 
sanctioned  Russian  bank  failed  in  March  2022. 
Following  the  reimbursement  of  depositors  for 
HUF  142  bn,  the  deposit  insurance  fund  will 
require  recapitalisation  by  commercial  banks, 
weighing on their profitability. (v) Some Hungarian 
banks  have  Russian  and  Ukrainian  exposures 
either  directly  or  through  their  parent  companies. 
While  this  does  not  create  systemic  risk  for  the 
Hungarian  financial  system,  it  might  affect  the 
banking  sector’s  profitability  and  capital  situation. 
According to May 2022 bank lending survey of the 
Hungarian  central  bank,  banks  planned  to  tighten 
lending conditions in response to these challenges, 
and  they  already  expected  credit  demand  to 
weaken in 2022 (52). 

Hungary’s  residential  real  estate  market 
exhibits  medium-term  vulnerabilities.  The 
(2022) (53) 
European  Systemic  Risk  Board 
in  Hungary’s 
identified  several  vulnerabilities 
housing  market,  such  as:  (i)  signs  of  house-price 
overvaluation; (ii) elevated house-price growth; (iii) 
high levels of mortgage credit growth; and (iv) fast 
growth in household indebtedness.  

in  Hungary 

Year-to-year growth in real house prices was 
close  to  or  even  above  10%  between  2015 
and  2019.  Growth  in  lending  to  households 
reached  15.2%  in  Q3  2021,  one  of  the  highest 
growth  rates  in  the  EU.  The  ESRB  warns  that  the 
is  partially 
current  policy  mix 
appropriate  and  partially  sufficient  in  mitigating 
risks.  It  suggested  tightening  Hungary’s  debt-
service-to-income  limit,  accompanied  by  maturity 
limits  and/or  introducing  a  sectoral  systemic  risk 
buffer  and  a  countercyclical  capital  buffer.  Policy 
adjustments  might  also  be  warranted  as 
government  house  subsidies  and  support  loans 
the 
could  have 
overvaluation 
household 
indebtedness. 

contributed 

increasing 

prices 

and 

of 

to 

(52)  https://bit.ly/3w87YfE  

(53) https://bit.ly/3iHVEfV (pp 102-105) 

58 

 
 
 
                                                 
 
 
Table A16.1: Financial soundness indicators 

(1) Last data: Q3 2021 
Source: ECB, Eurostat, Refinitiv 

59 

20172018201920202021Total assets of the banking sector (% of GDP)95.492.691.2108.3112.1Share (total assets) of the five largest bank (%)49.650.052.750.1-Share (total assets) of domestic credit institutions (%)153.752.857.157.858.6Financial soundness indicators:1- non-performing loans (% of total loans)8.45.44.23.63.0- capital adequacy ratio (%)16.218.518.018.318.2- return on equity (%)14.514.714.37.614.1NFC credit growth (year-on-year % change)10.213.614.18.910.6HH credit growth (year-on-year % change)2.67.316.614.315.2Cost-to-income ratio (%)164.463.964.761.057.2Loan-to-deposit ratio (%)171.872.776.074.474.9Central bank liquidity as % of liabilities3.92.83.69.5-Private sector debt (% of GDP)69.968.767.176.4-Long-term interest rate spread versus Bund (basis points)264.5266.2271.8273.4343.4Market funding ratio (%)35.233.132.535.7-Green bond issuance (bn EUR)---1.90.8 
 
  
 
ANNEX 17: TAXATION 
ANNEX 17: TAXATION 

This  Annex  provides  an 
indicator-based 
overview of  Hungary’s tax  system.  It  includes 
information  on  the  tax  structure,  i.e.  the  types  of 
tax  that  Hungary  derives  most  revenue  from,  the 
tax  burden  for  workers,  and  the  progressivity  and 
redistributive  effect  of  the  tax  system.  It  also 
provides 
tax  collection  and 
compliance  and  on  the  risks  of  aggressive  tax 
planning activity. 

information  on 

Hungary’s  tax  revenues  are  below  the  EU 
average,  with  a 
relatively  heavy  and 
increasing reliance on consumption taxes and 
a  relatively  low  and  decreasing  reliance  on 
labour taxes. A series of tax reforms since 2010 
has  left  total  tax  revenue  as  a  share  of  GDP 
broadly stable (at 36.3% in 2020 as compared to 
36.8%  in  2010)  but  shifted  taxation  from  labour 
and capital to consumption. Revenues from labour 
taxation  were  reduced  by  the  introduction  of  the 
flat  tax in 2011 (currently at 15%), cuts to social 
security  contributions,  and  an  extension  of  the 
family tax credit.  

Revenue  from  capital  taxation  have  also 
decreased  as  the  corporate  income  tax  rate 
was reduced from 19% to 9%. In turn, revenue 
from consumption taxes increased from 12.4% of 

Table A17.1: Indicators on taxation (**) 

GDP  in  2010  to  14.1%  in  2020  as  VAT  was 
increased to 27% in 2012 and a series of sectoral 
consumption-related  taxes  were  introduced.  While 
revenue from environmental  taxation is at the EU 
average  (at  2.2%  of  GDP  in  2020),  recurrent 
property  taxation  remains  relatively  low  (at  0.4% 
of  GDP  in  2020  compared  to  the  EU  average  of 
1.2%). 

The  tax  burden  of  low  earners  without 
children  has  decreased 
in  recent  years. 
However,  the  labour  tax  wedge  for  Hungary  in 
2020  was  higher  than  the  EU  average  at  lower 
income  levels.  The  labour  tax  wedge  at  high 
earnings  (at  167%  of  the  average  wage)  also 
decreased and is close to the EU average.  

Second  earners  at  a  wage  level  of  67%  of 
the  average  wage,  whose  spouse  earns  the 
average wage,  also  face  a  higher tax  wedge 
compared to the EU average. The ability of the 
Hungarian  tax  and  benefits  system  to  reduce 
inequalities (measured by its ability to reduce the 
Gini  coefficient)  decreased  from  comparatively 
high  levels  in  2010  to  below  the  EU  average  in 
2020.  

(1) Forward-looking Effective Tax Rate (OECD) 
(*) EU-27 simple average, as no aggregated EU-27 value 
(**)  For more data on tax revenues as well as the methodology applied see European Commission, Directorate-General for 
Taxation and Customs Union, Taxation trends in the European Union: data for the EU Member States, Iceland, Norway and United 
Kingdom: 2021 edition, Publications Office, 2021, https://data.europa.eu/doi/10.2778/843047 and the ‘Data on Taxation’ webpage 
(data https://ec.europa.eu/taxation_customs/taxation-1/economic-analysis-taxation/data-taxation_en). For more details on the VAT 
gap see European Commission, Directorate-General for Taxation and Customs Union, “VAT gap in the EU : report 2021”, 
Publications Office, 2021, https://data.europa.eu/doi/10.2778/30877 

Source: European Commission, Eurostat, OECD 

60 

2010201820192020202120102018201920202021Total taxes (including compulsory actual social contributions) (% of GDP)36.836.936.436.337.940.139.940.1Labour taxes (as % of GDP)17.316.916.716.320.020.720.721.5Consumption taxes (as % of GDP)12.414.113.914.110.811.111.110.8Capital taxes (as % of GDP)7.15.95.85.97.18.28.17.9Total property taxes (as % of GDP)1.11.01.01.11.92.22.22.3Recurrent taxes on immovable property (as % of GDP)0.30.50.40.41.11.21.21.2Environmental taxes as % of GDP2.62.32.32.22.42.42.42.2Tax wedge at 50% of Average Wage (Single person) (*)41.045.044.643.643.233.932.432.031.531.9Tax wedge at 100% of Average Wage (Single person) (*)46.645.044.643.643.241.040.240.139.939.7Corporate Income Tax - Effective Average Tax rates (1) (*)10.210.210.219.819.519.3Difference in GINI coefficient before and after taxes and cash social transfers (pensions excluded from social transfers)12.57.56.57.68.47.97.48.3Outstanding tax arrears: Total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)13.812.531.931.8VAT Gap (% of VTTL)8.99.611.210.5Dividends, Interests and Royalties (paid and received) as a share of GDP (%)5.96.46.410.710.5FDI flows through SPEs (Special Purpose Entities), % of total FDI flows (in and out)57.469.977.947.846.236.7HungaryEU-27Tax structureProgressivity & fairnessTax administration & complianceFinancial Activity Risk 
 
 
 
 
  
 
 
tax planning. 

Hungary is doing relatively well on digitalisation of 
the  tax  administration,  which  can  help  reduce  tax 
arrears and cut compliance costs. Outstanding tax 
arrears  declined  by  1.3  percentage  points  to 
12.5%  of  total  net  revenue  in  2019.  This  is 
considerably  below  the  EU27  average  of  31.8%, 
though  that  average  is  inflated  by  very  large 
values  in  a  few  Member  States.  Thanks  to  its 
mandatory  e-administration  system,  Hungary 
delivers moderately well in e-services. Its progress 
on  verification  and  compliance  management  (e.g. 
e-audits) 
the 
circumstances created  by COVID-19. The VAT gap 
the  effectiveness  of  VAT 
(an 
enforcement  and  compliance) 
in  2019  was 
approximately  9.6%  of  the  total  VAT  liability, 
which was lower than the EU average, but showed 
a  slight  increase  compared  to  2018.  Large  flows 
of  foreign  direct  investments  through  special 
purpose  entities  indicate  that  Hungary  is  possibly 
being used by companies to engage in aggressive 

improved  as  a 

indicator  of 

result  of 

Graph A17.1: Indicators on tax wedge (**) 

(1) The tax wedge measures the difference between the total labour cost of employing a worker and the worker’s net earnings: 
sum of personal income taxes and employee and employer social security contributions, net of family allowances, expressed as a 
percentage of total labour costs (the sum of the gross wage and social security contributions paid by the employer).  
(2) The second earner average tax wedge measures how much extra personal income tax (PIT) plus employee and employer social 
security contributions (SSCs) the family will have to pay as a result of the second earner entering employment, as a proportion of 
the second earner’s gross earnings plus the employer SSCs due on the second earner’s income. For a more detailed discussion see 
OECD (2016), Taxing Wages 2016, OECD Publishing, Paris. http://dx.doi.org/10.1787/tax_wages-2016-en 
(*) EU-27 simple average, as no aggregated EU-27 value. 
(**)  For more data on tax revenues as well as the methodology applied see European Commission, Directorate-General for 
Taxation and Customs Union, Taxation trends in the European Union: data for the EU Member States, Iceland, Norway and United 
Kingdom: 2021 edition, Publications Office, 2021, https://data.europa.eu/doi/10.2778/843047 and the ‘Data on Taxation’ webpage 
(data https://ec.europa.eu/taxation_customs/taxation-1/economic-analysis-taxation/data-taxation_en). For more details on VAT 
GAP see European Commission, Directorate-General for Taxation and Customs Union, “VAT gap in the EU : report 2021”, 
Publications Office, 2021, https://data.europa.eu/doi/10.2778/30877   

Source: European Commission 

61 

43.162443.162443.162443.162443.1624At 50% of Average Wage (Singleperson)At 67% of Average Wage (Singleperson)At 100% of Average Wage (Singleperson)At 167% of Average Wage (Singleperson)For second earner at 67% of AverageWage (Two earner couple, 1st earner100% of AW) (1)Tax wedge 2021 (%)HUEU-27 (*) 
  
 
ANNEX 18: KEY ECONOMIC AND FINANCIAL INDICATORS 
ANNEX 18: KEY ECONOMIC AND FINANCIAL INDICATORS 

Table A18.1: Key economic and financial indicators 

(1) NIIP excluding direct investment and portfolio equity shares.         
(2) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-
controlled branches.         

Source:  Eurostat and ECB as of 2022-05-02, where available; European Commission for forecast figures (Spring forecast 2022) 

62 

 
 
 
 
 
 
ANNEX 19: DEBT SUSTAINABILITY ANALYSIS 
ANNEX 19: DEBT SUSTAINABILITY ANALYSIS 

‘adverse interest-growth rate’ scenario assumes a 
in  the 
less  favourable  snowball  effect  than 
baseline.  In  the  ‘financial  stress’  scenario,  the 
country  temporarily  faces  higher  market  interest 
rates in 2022.  

Graph 2 shows the outcome of the stochastic 
projections.  These  projections  show  the  impact 
on  debt  of  2  000  different  shocks  affecting  the 
government’s 
economic 
growth,  interest  rates  and  exchange  rates.  The 
cone covers 80% of all the simulated debt paths, 
therefore excluding tail events. 

budgetary 

position, 

Table  2  shows  the  S1  and  S2  fiscal 
sustainability 
indicators  and  their  main 
drivers.  S1  measures  the  consolidation  effort 
needed to bring debt to 60% of GDP in 15 years. 
S2  measures  the  consolidation  effort  required  to 
stabilise  debt  over  an  infinite  horizon.  The  initial 
budgetary position measures the effort required to 
cover  future  interest  payments,  the  ageing  costs 
component  accounts  for  the  need  to  absorb  the 
projected 
public 
expenditure  such  as  pensions,  health  care  and 

in  ageing-related 

change 

This  annex  assesses  fiscal  sustainability 
risks for Hungary over the short, medium and 
long term. It follows the same multi-dimensional 
approach as the 2021 Fiscal Sustainability Report, 
updated  on  the  basis  of  the  Commission  2022 
spring forecast. 

Table  1  presents 
the  baseline  debt 
projections.  It  shows  the  projected  government 
debt  and  its  breakdown  into  the  primary  balance, 
the  snowball  effect  (the  combined  impact  of 
interest payments and nominal GDP growth on the 
debt  dynamics)  and  the  stock-flow  adjustment. 
These projections assume that no new fiscal policy 
measures  are  taken  after  2023,  and  include  the 
expected  positive  impact  of  investments  under 
Next Generation EU.  

Graph  1  shows  four  alternative  scenarios 
around  the  baseline, to  illustrate the  impact 
of changes in assumptions. The ‘historical SPB’ 
scenario  assumes  that  the  structural  primary 
balance (SPB) gradually returns to its past average 
level.  In  the  ‘lower  SPB’  scenario,  the  SPB  is 
permanently  weaker  than  in  the  baseline.  The 

Table A19.1: Debt sustainability analysis for Hungary 

Source: European Commission 

63 

Table 1. Baseline debt projections20192020202120222023202420252026202720282029203020312032Gross debt ratio (% of GDP)65.579.676.876.476.174.973.472.272.472.171.972.072.372.8Change in debt-3.614.1-2.8-0.4-0.3-1.2-1.5-1.20.2-0.3-0.10.00.30.5of whichPrimary deficit-0.15.54.43.31.91.61.10.91.21.11.11.11.21.3Snowball effect-3.81.4-7.7-3.9-2.2-2.8-2.6-2.0-1.0-1.5-1.2-1.1-0.9-0.7Stock-flow adjustment0.37.30.50.10.00.00.00.00.00.00.00.00.00.0Gross financing needs (% of GDP)18.127.119.117.517.217.116.616.316.716.816.917.117.417.6S1S2Overall index (pps. of GDP)1.96.3of whichInitial budgetary position0.71.8Debt requirement1.1Ageing costs0.04.5of whichPensions-0.13.2Health care0.20.7Long-term care0.10.6Others-0.20.0                                                                       Table 2. Breakdown of the S1 and S2 sustainability gap indicators4555657585951052019202120232025202720292031BaselineHistorical SPB scenarioLower SPB scenarioFinancial stress scenarioAdverse 'r-g' scenarioGraph 1. Deterministic debt projections (% of GDP)p10-p20p20-p40p40-p60p60-p80p80-p9045556575859510520192020202120222023202420252026Graph 2. Stochastic debt projections(% of GDP)MedianBaseline 
 
 
 
   
 
Table A19.2: Heat map of fiscal sustainability risks for Hungary 

(1) Debt level in 2032: green: below 60% of GDP, yellow: between 60% and 90%, red: above 90%. (2) The debt peak year 
indicates whether debt is projected to increase overall over the next decade. Green: debt peaks early; yellow: peak towards the 
middle of the projection period; red: late peak. (3) Fiscal consolidation space measures the share of past fiscal positions in the 
country that were more stringent than the one assumed in the baseline. Green: high value, i.e. the assumed fiscal position is 
plausible by historical standards and leaves room for corrective measures if needed; yellow: intermediate; red: low. (4) Probability 
of the debt ratio exceeding in 2026 its 2021 level: green: low probability, yellow: intermediate, red: high (also reflecting the initial 
debt level). (5) The difference between the 90th and 10th percentiles measures uncertainty, based on the debt distribution under 
2000 different shocks. Green, yellow and red cells indicate increasing uncertainty.                

Source: European Commission, (for further details on the Commission’s multi-dimensional approach, see the 2021 Fiscal 
Sustainability Report). 

long-term  care,  and 
requirement 
measures  the  additional  adjustment  needed  to 
reach the 60% of GDP debt target. 

the  debt 

risk 

sustainability 

Finally,  the  heat  map  presents  the  overall 
fiscal 
classification 
(Table A19.2).  The  short-term  risk  category  is 
based  on  the  S0  indicator,  an  early-detection 
indicator of fiscal stress in the upcoming year. The 
medium-term  risk  category  is  derived  from  the 
debt  sustainability  analysis  (DSA)  and  the  S1 
indicator.  The  DSA  assesses  risks to  sustainability 
based  on  several  criteria: the  projected  debt level 
in 10 years’ time, the debt trajectory (‘peak year’), 
the plausibility of fiscal assumptions and room for 
tighter  positions  if  needed  (‘fiscal  consolidation 
space’),  the  probability  of  debt  not  stabilising  in 
the  next  5  years  and  the  size  of  uncertainty.  The 
long-term  risk  category  is  based  on  the  S2 
indicator and the DSA.  

possible  shocks  to  fiscal,  macroeconomic  and 
financial  variables,  as  illustrated  by  alternative 
scenarios  and  stochastic  simulations  (Graphs  1 
and  2).  Moreover,  the  sustainability  gap  indicator 
S1 signals that an adjustment of 1.9 pps. of GDP 
of the structural primary balance would be needed  
to  reduce  debt  to  60%  of  GDP  in  15  years’  time 
(Table 2).  Overall,  the  medium  risk  reflects  the 
initial  budgetary  position,  the  current  debt  level 
and 
the 
the  high  uncertainty  surrounding 
projections. 

Long-term  risks  to  fiscal  sustainability  are 
high.  The  sustainability  gap  indicator  S2  (at  6.3 
pps.  of  GDP)  points  to  high  risks,  while  the  DSA 
points  to  medium  risks,  leading  overall  to  a  high 
risk assessment. The S2 indicator suggests that, to 
stabilise  debt  over  the  long  term,  it  will  be 
necessary  to  address  budgetary  pressures  from 
population  ageing,  especially  from  public  pension 
expenditure and health care (Table 2).   

short-term 

Overall, 
fiscal 
sustainability are low. The Commission’s early-
detection  indicator  (S0)  does  not  signal  major 
short-term fiscal risks (Table 19.2).  

risks 

to 

two  elements  of 

Medium-term  risks  to  fiscal  sustainability 
are  medium.  The 
the 
Commission’s  medium-term  analysis  lead  to  this 
conclusion.  First,  the  debt  sustainability  analysis 
(DSA) shows that government debt is projected to 
only slightly decline from around 76% in 2022 to 
about  73%  of  GDP  in  2032  in  the  baseline 
(Table 1).  This  debt  path  is  also  sensitive  to 

64 

BaselineHistorical SPBLower SPBAdverse 'r-g'Financial stressOverallLOWLOWMEDIUMMEDIUMLOWMEDIUMDebt level (2032), % GDP7365867973Debt peak year20212021203220322021Fiscal consolidation space66%58%72%66%66%38%44Short termOverall                               (S0)Overall     (S1+DSA)S1Debt sustainability analysis (DSA)OverallHIGHLong termMedium termProbability of debt ratio exceeding in 2026 its 2021 levelDifference between 90th and 10th percentiles (pps. GDP)Deterministic scenariosStochastic projectionsS2Overall     (S2+DSA)LOWMEDIUMMEDIUMMEDIUMHIGH