Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Hungary
Date: 2024-06-19
Institutions: European Commission, Secretariat-General
Subjects: Hungary, budget policy, economic policy, economic recovery, economic reform, employment policy, energy diversification, fiscal policy, social policy, stability pact

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   EUROPEAN COMMISSION  Brussels, 19.6.2024  COM(2024) 617 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Hungary    {SWD(2024) 600 final} - {SWD(2024) 617 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic, social, employment, structural and budgetary policies of Hungary 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council 
of  29  April  2024  on  the  effective  coordination  of  economic  policies  and  on  multilateral 
budgetary surveillance and repealing Council Regulation (EC) No 1466/971, and in particular 
Article 3(3) thereof,the 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council3,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021. The Recovery and Resilience Facility provides financial support to the Member 
States  for  the  implementation  of  reforms  and  investment,  entailing  a  fiscal  impulse 
financed by the EU. In line with the European Semester priorities, it helps achieve the 
economic  and social  recovery  and implement sustainable reforms  and investment,  in 
particular  to  promote  the  green  and  digital  transitions  and  make  the  Member  States’ 
economies  more  resilient.  It  also  helps  strengthen  public  finances  and  boost  growth 

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OJ L 2024/1263, 30.4.2024 ELI: http://data.europa.eu/eli/reg/2024/1263/oj. 
OJ L 2024/1263, 30.4.2024 ELI: http://data.europa.eu/eli/reg/2024/1263/oj. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
(OJ  L  57,  18.2.2021,  p.  17)  ELI: 
establishing 
http://data.europa.eu/eli/reg/2021/241/oj. 

the  Recovery  and  Resilience  Facility 

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and job creation in the medium and long term, improve territorial cohesion within the 
EU and support the continued implementation of the European Pillar of Social Rights.  
The  REPowerEU  Regulation4,  adopted  on  27  February  2023,  aims  to  phase  out  the 
EU’s  dependency  on  Russian  fossil  fuel  imports.  This  would  help  achieve  energy 
security  and  diversify  the  EU’s  energy  supply,  while  increasing  the  uptake  of 
renewables,  energy  storage  capacities  and  energy  efficiency.  Hungary  added  a  new 
REPowerEU  chapter  to  its  national  recovery  and  resilience  plan  in  order  to  finance 
key reforms and investments that will help achieve the REPowerEU objectives. 

On  16  March  2023,  the  Commission  issued  a  Communication  on  the  ‘Long-term 
competitiveness of the EU: looking beyond 2030’5, in order to inform policy decisions 
and  create  the  framework  conditions  for  increasing  growth.  The  Communication 
frames competitiveness along nine mutually reinforcing drivers. Among these drivers, 
access to private capital, research and innovation, education and skills, and the single 
market  emerge  as  paramount  policy  priorities  for  reform  and  investment  to  address 
current productivity challenges as well as to build up the long-term competitiveness of 
the EU and its Member States. On 14 February  2024, the  Commission  followed this 
Communication  with  the  Annual  Single  Market  and  Competitiveness  Report6.  The 
report  details  the  competitive  strengths  and  challenges  of  Europe's  Single  Market, 
tracking yearly developments according to the nine competitiveness drivers identified.  

On 21 November 2023, the Commission adopted the 2024 Annual Sustainable Growth 
Survey7, marking the start of the 2024 cycle of the European Semester for economic 
policy  coordination.  The  European  Council  endorsed  the  priorities  of  the  survey 
around  the  four  dimensions  of  competitive  sustainability  on  22  March  2024.  On  21 
November 2023, on the basis of Regulation (EU) No 1176/2011, the Commission also 
adopted the 2024  Alert  Mechanism Report, in  which it  identified Hungary as  one of 
the  Member  States  that  may  be  affected  or  may  be  at  risk  of  being  affected  by 
imbalances, and for which an in-depth review would be needed. The Commission also 
adopted a recommendation for a Council recommendation on the economic policy of 
the euro area, which the Council adopted on 12 April 2024, as well as the proposal for 
the 2024 Joint Employment Report analysing the implementation of the Employment 
Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights,  which  the 
Council adopted on 11 March 2024.  

On  30  April  2024,  the  EU’s  new  economic  governance  framework  came  into  force. 
The  framework  includes  the  new  Regulation  of  the  European  Parliament  and  of  the 
Council  (EU)  2024/1263  on  the  effective  coordination  of  economic  policies  and 
multilateral  budgetary  surveillance  and  repealing  Council  Regulation  (EC)  No 
1466/97.  It  also  includes  the  amended  Regulation  (EC)  No  1467/97  on  the 
implementation  of  the  excessive  deficit  procedure  and  the  amended  Directive 
2011/85/EU  on  the  budgetary  frameworks  of  Member  States8.  The  objectives  of  the 

Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27  February  2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1) ELI: http://data.europa.eu/eli/reg/2023/435/oj. 
COM(2023) 168 final. 
COM(2024) 77 final. 
COM(2024) 77 final. 
Council  Regulation  (EU)  2024/1264  of  29  April  2024  amending  Regulation  (EC)  No  1467/97  on 
speeding  up  and  clarifying  the  implementation  of  the  excessive  deficit  procedure  (OJ  L,  2024/1264, 

(2) 

(3) 

(4) 

(5) 

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new  framework  are  public  debt  sustainability  and  sustainable  and  inclusive  growth 
through gradual  fiscal  consolidation  as  well as  reforms  and investments.  It  promotes 
national  ownership  and  has  a  greater  medium-term  focus,  combined  with  more 
effective and coherent enforcement. Each Member State should submit to the Council 
and  to  the  Commission  a  national  medium-term  fiscal-structural  plan.  National 
medium-term  fiscal-structural  plans  contain  the  fiscal,  reform  and  investment 
commitments  of  a  Member  State,  covering  a  planning  horizon  of  4  years  or  5  years 
depending on the regular length of the national legislature. The net expenditure9 path 
in  the  national  medium-term  fiscal-structural  plans  should  comply  with  the 
requirements of Regulation (EU) 2024/1263, including the requirements to put or keep 
general government debt on a plausibly downward path by the end of the adjustment 
period  at  the  latest,  or  for  it  to  remain  at  prudent  levels  below  60%  of  GDP,  and  to 
bring  and/or  maintain  the  government  deficit  below  the  3%  of  GDP  reference  value 
over  the  medium  term.  Where  a  Member  State  commits  to  a  relevant  set  of  reforms 
and investments in accordance with the criteria set out in Regulation (EU) 2024/1263, 
the  adjustment  period  may  be  extended  by  3  years  at  most.  For  the  purpose  of 
supporting the preparation of those plans, on [21 June] 2024, the Commission is set to 
provide Member States with guidance on the content of the plans and the subsequent 
annual progress reports that they will need to submit and, in accordance with Article 5 
of Regulation (EU) 2024/1263, will transmit to them technical guidance on the fiscal 
adjustments  (reference  trajectories  and  technical  information,  where  applicable). 
Member  States  should  submit  their  medium-term  fiscal-structural  plans  by  20 
September  2024,  unless  the  Member  State  and  the  Commission  agree  to  extend  the 
deadline by a reasonable period of time. Member States should ensure the involvement 
of their national parliaments, and the consultation of independent fiscal institutions, of 
social partners and other national stakeholders, as appropriate. 

In 2024, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  The  full 
implementation  of  the  recovery  and  resilience  plans  remains  essential  for  delivering 
the policy priorities under the European Semester, as the plans help effectively address 
all  or  a  significant  subset  of  challenges  identified  in  the  relevant  country-specific 
recommendations  issued  in  recent  years.  The  2019,  2020,  2022  and  2023  country-
specific  recommendations  remain  equally  relevant  also  for  recovery  and  resilience 
plans  revised,  updated  or  amended  in  accordance  with  Articles  14,  18  and  21  of 
Regulation (EU) 2021/241.  

On 11 May 2021, Hungary submitted its national recovery and resilience plan to the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the  relevance, 
effectiveness,  efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in 
accordance  with  the  assessment  guidelines  of  Annex  V  to  that  Regulation.  On  15 

30.4.2024,  ELI: http://data.europa.eu/eli/reg/2024/1264/oj)  and  Council  Directive  (EU)  2024/1265  of 
29  April  2024  amending  Directive  2011/85/EU  on  requirements  for  budgetary  frameworks  of  the 
Member States (OJ L, 2024/1265, 30.4.2024, ELI: http://data.europa.eu/eli/dir/2024/1265/oj). 
Net expenditure as defined in Article 2 of Council Regulation (EU) 2024/1263 of 29 April 2024 (OJ L 
2024/1263,  30.4.2024.  ELI: http://data.europa.eu/eli/reg/2024/1263/oj).  Net  expenditure  means 
government  expenditure  net  of  (i)  interest  expenditure,  (ii)  discretionary  revenue  measures,  (iii) 
expenditure  on  programmes  of  the  Union  fully  matched  by  Union  funds  revenue,  (iv)  national 
expenditure  on  co-financing  of  programmes  funded  by  the  Union,  (v)  cyclical  elements  of 
unemployment benefit expenditure, and (vi) one-offs and other temporary measures. 

(6) 

(7) 

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(8) 

(9) 

December 2022, the Council adopted its Decision on the approval of the assessment of 
the  recovery  and  resilience  plan  for  Hungary10,  which  was  amended  on  8  December 
2023  to  include  the  REPowerEU  chapter11.  The  release  of  instalments  is  conditional 
on  a  decision  by  the  Commission,  taken  in  accordance  with  Article  24(5)  of 
Regulation  (EU)  2021/241,  that  Hungary  has  satisfactorily  fulfilled  the  relevant 
milestones and targets set out in the Council Implementing Decision.  

On  30  April  2024,  Hungary  submitted  its  2024  National  Reform  Programme  and  its 
2024  Convergence  Programme,  in  line  with  Article  8(1)  of  Regulation  (EC)  No 
1466/97.  In  accordance  with  Article  27  of  Regulation  (EU)  2021/241,  the  2024 
National  Reform  Programme  also  reflects  Hungary’s  biannual  reporting  on  the 
progress made in achieving its recovery and resilience plan.  
The Commission published the 2024 country report for Hungary12 on 19 June 2024. It 
assessed  Hungary’s  progress 
relevant  country-specific 
in  addressing 
recommendations  adopted by the Council  between 2019  and  2023 and  took stock of 
Hungary’s implementation of the recovery and resilience plan. Based on this analysis, 
the  country  report  identified  gaps  with  respect  to  those  challenges  that  are  not 
addressed  or  only  partially  addressed  by  the  recovery  and  resilience  plan,  as  well  as 
new  and  emerging  challenges.  It  also  assessed  Hungary’s  progress  on  implementing 
the  European  Pillar  of  Social  Rights  and  on  achieving  the  EU  headline  targets  on 
employment, skills and poverty reduction, as well as progress in achieving the UN’s 
Sustainable Development Goals. 

the 

(10)  The  Commission  carried  out  an  in-depth  review  under  Article  5  of  Regulation  (EU) 
No 1176/2011 for Hungary. The main findings of the Commission’s staff assessment 
of  macroeconomic  vulnerabilities  for  Hungary  for  the  purposes  of  that  Regulation 
were  published  in  April  202413.  On  19  June  2024,  the  Commission  concluded  that 
Hungary  is  experiencing  macroeconomic  imbalances.  In  particular,  Hungary  faces 
vulnerabilities related to price pressures and external and government financing needs, 
which  remain  relevant,  although  an  improving  external  environment  has  mitigated 
some  short-term  risks.  The  large  current  account  deficit  closed  in  2023  as  domestic 
demand shrunk amid a recession in Hungary, and due to lower energy prices. Together 
with tighter monetary policy, these factors helped reduce the very high inflation rate. 
Nevertheless, core inflation has remained among the highest in the EU, and unit labour 
costs  have  continued  to  grow  strongly,  exerting  pressure  on  competitiveness.  The 
current account is expected to revert to a small deficit next year as domestic demand 
recovers,  while  the  economy,  and  its  external  financing,  remain  exposed  to 
developments  in  energy  prices  and  risk  premia.  House  prices  slowed  down  and 
overvaluation  eased  in  2023  against  the  backdrop  of  higher  interest  rates.  The  large 
budget  deficit  persists  on  account  of  expansionary  policies  and  weakening  growth 
since the recession in 2023. The deficit is forecast to narrow somewhat, but to remain 
significant and contributing to inflation and adding to external borrowing needs. The 
government  debt-to-GDP  and  the  interest  burden  are  set  to  remain  elevated.  Policy 

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Council  Implementing  Decision  of  15  December  2022  on  the  approval  of  the  assessment  of  the 
recovery and resilience plan for Hungary (15447/2022). 
Council  Implementing  Decision  of  8  December  2023  amending  the  Implementing  Decision  of  15 
December  2022  on  the  approval  of  the  assessment  of  the  recovery  and  resilience  plan  for  Hungary 
(15964/1/23). 
SWD(2024) 617 final. 
SWD(2024) 103 final. 

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progress  has  been  limited  across  all  areas,  particularly  fiscal  and  structural  ones, 
contributing  to  the  persistence  of  the  identified  vulnerabilities.  Fiscal  adjustment 
would contribute to reducing core inflation and strengthening the external position as 
well  as  containing  rises  in  government  debt;  the  launch  of  an  Excessive  Deficit 
Procedure should underpin such an adjustment. Timely and effective implementation 
of the RRP is  expected to  help  reduce vulnerabilities, which would be reinforced by 
the  phasing  out  of  distortive  interventions  in  markets  and  by  reforms  that  support 
fiscal consolidation.  

(11)  Based on data validated by Eurostat14, Hungary’s general government deficit increased 
from 6.2% of GDP in 2022 to 6.7% in 2023, while the general government debt  fell 
from 74.1% of GDP at the end of 2022 to 73.5% at the end of 2023. As announced in 
the  fiscal  policy  guidance  for  202415,  the  Commission  is  taking  the  first  step  for  the 
opening of deficit-based excessive deficit procedures on the basis of the outturn data 
for  2023,  in  line  with  existing  legal  provisions.  On  19  June  2024,  the  Commission 
adopted  a  report  under  Article  126(3)  of  the  TFEU16.  That  report  assessed  the 
budgetary situation of Hungary, as its general government deficit in 2023 exceeded the 
reference  value  of  3%  of  GDP.  The  report  concluded  that  in  the  light  of  this 
assessment,  and  after  considering  the  opinion  of  the  Economic  and  Financial 
Committee  as  established  under  article  126(4)  TFEU,  the  Commission  intends  to 
propose  in  July  to  an  open  excessive  deficit  procedure,  by  recommending  to  the 
Council  to  adopt  a  Decision  under  Article  126(6)  establishing  the  existence  of  an 
excessive deficit, for Hungary. 

(12)  On  12  July  2022,  the  Council  recommended17  that  Hungary  take  action  to  ensure  in 
2023 that the growth of nationally financed primary current expenditure is in line with 
an  overall  neutral  policy  stance18,  taking  into  account  continued  temporary  and 
targeted support to households and firms most vulnerable to energy price hikes and to 
people  fleeing  Ukraine.  Hungary  was  recommended  to  stand  ready  to  adjust  current 
spending to the evolving situation. Hungary was also recommended to expand public 
investment  for  the  green  and  digital  transitions,  and  for  energy  security  taking  into 
account  the  REPowerEU  initiative,  including  by  making  use  of  the  Recovery  and 
Resilience  Facility  and  other  Union  funds.  In  2023,  according  to  the  Commission 
estimates, the fiscal stance19 was contractionary, at 4.7% of GDP, in a context of high 
inflation.  The  growth  in  nationally  financed  primary  current  expenditure  (net  of 

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SWD(2024) 103 final. 
COM(2023) 141 final. 
Report  from  the  Commission,  prepared  in  accordance  with  Article  126(3)  of  the  Treaty  on  the 
Functioning of the European Union, 19.6.2024, COM(2024)598 final. 
Council  Recommendation  of  12  July  2022  on  the  National  Reform  Programme  of  Hungary  and 
delivering a Council opinion on the 2022 Convergence Programme of Hungary OJ C 334, 1.9.2022, p. 
136. 
Council  Recommendation  of  12  July  2022  on  the  National  Reform  Programme  of  Hungary  and 
delivering a Council opinion on the 2022 Convergence Programme of Hungary OJ C 334, 1.9.2022, p. 
136. 
The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of 
the  general  government.  It  aims  to  assess  the  economic  impulse  stemming  from  fiscal  policies,  both 
those  that  are  nationally  financed  and  those  that  are  financed  by  the  EU  budget.  The  fiscal  stance  is 
measured as the difference between (i) the medium-term potential growth and (ii) the change in primary 
expenditure  net  of  discretionary  revenue  measures  (and  excluding  temporary  emergency  measures 
related to the COVID-19 crisis) and including expenditure financed by non-repayable support (grants) 
from the Recovery and Resilience Facility and other Union funds. 

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discretionary revenue measures) in 2023 provided a contractionary contribution to the 
fiscal  stance  of  1.7%  of  GDP.  The  growth  of  nationally  financed  primary  current 
expenditure  in  2023  was  in  line  with  the  Council  recommendation.  However,  it  is 
important to note that this was largely driven by the very high level of net expenditure 
in  2022  compared  to  2023,  including  untargeted  expenditure  in  several  areas,  which 
contributed  to  macroeconomic  imbalances,  financed  by  windfall  profit  and  sectoral 
taxes  levied  on  companies  mainly  in  the  energy,  financial  and  retail  sectors.] 
Nationally  financed  investment  amounted  to  4.6%  of  GDP  in  2023,  representing  an 
increase  of  0.2  percentage  points  as  compared  to  2022.  Hungary  financed  public 
investment for the green and digital transitions, and for energy security, such as energy 
efficiency  enhancements  and  digitalisation  in  healthcare  and  education.  Hungary  has 
not yet submitted a payment request under the Recovery and Resilience Facility. 

(13)  The  key  projections  in  the  2024  Convergence  Programme  can  be  summarised  as 
follows. The macroeconomic scenario underpinning the budgetary projections foresees 
real GDP growth at 2.5% in 2024 and 4.1% in 2025, while it projects HICP inflation at 
4.2%  in  2024  and  3.6%  in  2025.  The  general  government  deficit  is  expected  to 
decrease to 4.5% of GDP in 2024 and stand at 3.7% of GDP in 2025, while the general 
government  debt-to-GDP  ratio  is  set  to  decrease  to  73.2%  by  the  end  of  2024  and 
72.1% by the end of 2025. After 2025, the general government deficit is projected to 
decrease  gradually  to  2.9%  of  GDP  in  2026,  2.4%  in  2027  and  1.9%  in  2028. 
Therefore,  the  general  government  balance  is  planned  to  go  below  the  3%  of  GDP 
deficit  reference  value  in  2026.  In  turn,  after  2025,  the  general  government  debt-to-
GDP  ratio  is  projected  to  decrease  gradually  to  68.8%  in  2026,  66.0%  in  2027  and 
62.8% in 2028. 

(14)  The  Commission  Spring  2024  Forecast  projects  real  GDP  to  grow  by  2.4%  in  2024 
and 3.5% in 2025, and HICP inflation to stand at 4.1% in 2024 and 3.7% in 2025. 

(15)  The Commission Spring 2024 Forecast projects a government deficit of 5.4% of GDP 
in 2024, while the general government debt-to-GDP ratio is set to  increase to 74.3% 
by  the  end  of  2024.  The  decrease  of  the  deficit  in  2024  mainly  reflects  a  gradual 
recovery  of  tax  revenues,  lower  spending  on  subsidies  to  utility  companies  for  the 
losses  incurred  due  to  caps  on  residential  energy  prices,  and  a  decrease  in  public 
investments. The increase in the debt-to-GDP ratio is driven by a high headline deficit, 
lower  nominal  GDP  growth,  and  additional  debt-increasing  transactions,  such  as  the 
expected  acquisition  of  the  Budapest  airport  by  entities  classified  in  the  general 
government  sector  and  the  implementation  of  financial  instruments  supported  under 
REPowerEU  loans.  Based  on  the  Commission’s  estimates,  the  fiscal  stance  is 
projected to be contractionary by 1.0% of GDP in 2024. 

(16)  Expenditure amounting to 0.8% of GDP is expected to be financed by non-repayable 
support  (“grants”)  from  the  Recovery  and  Resilience  Facility  in  2024,  compared  to 
0.3%  of  GDP  in  2023,  according  to  the  Commission  Spring  2024  Forecast. 
Expenditure  financed  by  Recovery  and  Resilience  Facility  grants  will  enable  high-
quality investment and productivity-enhancing reforms without a direct impact on the 
general government balance and debt of Hungary. Expenditure amounting to 0.4% of 
GDP is expected to be backed by loans from the Recovery and Resilience Facility in 
2024 (no loan-financed expenditure in 2023). 

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(17)  On  14  July  2023,  the  Council  recommended20  that  Hungary  ensure  a  prudent  fiscal 
policy,  in  particular  by  limiting  the  nominal  increase  in  net  nationally  financed 
primary  expenditure21  in  2024  to  not  more  than  4.4%.  When  executing  their  2023 
budgets and preparing their budgets for 2024, Member States were invited to take into 
account  that  the  Commission  would  propose  to  the  Council  the  opening  of  deficit-
based  excessive  deficit  procedures  based  on  the  outturn  data  for  2023.  According  to 
the  Commission  Spring  2024  Forecast,  Hungary’s  net  nationally  financed  primary 
expenditure  is  projected  to  increase  by  3.6%  in  2024,  which  is  below  the 
recommended  maximum  growth  rate.  However,  net  expenditure  in  2023  was  higher 
than expected at the time of the recommendation (by 1.8% of GDP). Therefore, as the 
recommendation  for  2024  was  formulated  as  a  growth  rate,  the  assessment  of 
compliance  also  needs  to  take  into  account  the  base  effect  from  2023.  Had  net 
expenditure in 2023 been the same as expected at the time of the recommendation, the 
resulting  growth  rate  of  net  expenditure  in  2024  would  have  been  above  the 
recommended  growth  rate  by  1.5%  of  GDP.  Therefore,  net  nationally  financed 
primary  expenditure  is  assessed  as  at  risk  of  being  not  fully  in  line  with  the 
recommendation. 

(18)  Moreover,  the  Council  recommended  that  Hungary  take  action  to  wind  down  the 
emergency energy support measures in  force, using the related savings to  reduce the 
government  deficit,  as  soon  as  possible  in  2023  and  2024.  The  Council  further 
specified  that,  should  renewed  energy  price  increases  necessitate  new  or  continued 
support  measures,  Hungary  should  ensure  that  these  were  targeted  at  protecting 
vulnerable  households  and  firms,  fiscally  affordable,  and  preserve  incentives  for 
energy savings. According to the Commission Spring 2024 Forecast, the net budgetary 
cost22 of energy support measures is estimated at 1.6% of GDP in 2023 and projected 
at 0.9% in 2024 and 0.4% in 2025. In particular, subsidies to utility companies for the 
losses incurred due to caps on residential energy prices are assumed to remain in force 
in 2024 and 202523. If the related savings were used to reduce the government deficit, 
as recommended by the Council, these projections would imply a fiscal adjustment of 
0.6% of GDP in 2024, whereas net nationally financed primary expenditure24 provides 
a  contractionary  contribution  to  the  fiscal  stance  of  1.9%  of  GDP  in  that  year.  The 
emergency  energy support measures are  not projected to  be wound down  as  soon as 
possible in 2023 and 2024. This  risks being not in line with what was recommended 
by the Council. However, the related savings are projected to be fully used to reduce 

20 

21 

22 

23 

24 

Council  Recommendation of 14 July 2023  on the  2023 National Reform Programme of  Hungary and 
delivering a Council opinion on the 2023 Convergence Programme of Hungary, OJ C 312, 1.9.2023, p. 
155. 
Net primary expenditure is defined as nationally financed expenditure net of  (i) discretionary revenue 
measures, (ii) interest expenditure, (iii) cyclical unemployment expenditure, and (iv) and one-offs and 
other temporary measures. 
Net primary expenditure is defined as nationally financed expenditure net of  (i) discretionary revenue 
measures, (ii) interest expenditure, (iii) cyclical unemployment expenditure, and (iv) and one-offs and 
other temporary measures. 
Net primary expenditure is defined as nationally financed expenditure net of  (i) discretionary revenue 
measures, (ii) interest expenditure, (iii) cyclical unemployment expenditure, and (iv) and one-offs and 
other temporary measures. 
This contribution is measured as the change in general government primary expenditure, net of  (i) the 
incremental  budgetary  impact  of  discretionary  revenue  measures,  (ii)  one-offs,  (iii)  cyclical 
unemployment  expenditure  and  (iv)  expenditure  financed by  non-repayable  support  (grants)  from  the 
Recovery  and  Resilience  Facility  and  other  EU  funds,  relative  to  the  medium-term  (10-year)  average 
potential nominal GDP growth rate, expressed as a ratio to nominal GDP. 

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(19) 

the  government  deficit.  This  is  in  line  with  the  Council  recommendation.  The 
budgetary  cost  of  emergency  energy  support  measures  targeted  at  protecting 
vulnerable households and firms is estimated at 0.0% of GDP in 2024 (0.1% in 2023), 
of which 0.0% of GDP preserve the price signal to reduce energy demand and increase 
energy efficiency (0.1% in 2023). 

In addition, the Council also recommended that Hungary preserve nationally financed 
public  investment  and  ensure  the  effective  absorption  of  Recovery  and  Resilience 
Facility  grants  and  other  EU  funds,  in  particular  to  foster  the  green  and  digital 
transitions.  According  to  the  Commission  Spring  2024  Forecast,  nationally  financed 
public  investment  is  projected  to  decrease  to  4.0%  of  GDP  in  2024  (from  4.6%  of 
GDP in 2023). This is largely due to the cuts and postponements in nationally financed 
investment projects announced by the authorities in light of the high projected deficits. 
This  risks  being  not  in  line  with  what  was  recommended  by  the  Council.  In  turn, 
public  expenditure  financed  from  revenues  from  EU  funds,  including  Recovery  and 
Resilience Facility grants, is expected to increase to 1.7% of GDP in 2024 from 0.8% 
of GDP in 2023. This increase is due to a projected pickup in the absorption of the EU 
cohesion  policy  funding  from  the  2020-2027  programming  period  and  higher 
expenditure on investments supported by the Recovery and Resilience Facility. 

(20)  Based on policy measures known at the cut-off date of the forecast and on a no-policy-
change  assumption,  the  Commission  Spring  2024  Forecast  projects  a  government 
deficit  of  4.5%  of  GDP  in  2025.  The  decrease  of  the  deficit  in  2025  mainly  reflects 
higher  VAT  and  PIT  revenue  on  the  back  of  stronger  growth,  a  further  decrease  in 
subsidies to utility companies for the losses incurred due to caps on residential energy 
prices,  and  lower  interest  expenditure  due  to  decreasing  coupon  payments  on  the 
inflation-linked  retail  bonds.  At  the  same  time,  the  planned  phaseout  of  temporary 
windfall profit and sectoral taxes in line with their sunset clauses levied since 2022 is 
set to have a debt-increasing impact. The general government debt-to-GDP ratio is set 
to  decrease  slightly  to  73.8%  by  the  end  of  2025.  Prudent  fiscal  policy  should 
contribute to  reducing  core inflation,  which is  well above the EU average and could 
lead to competitiveness losses if persistent and strengthening the external position too. 

(21)  Weaknesses in budget planning and execution have increased the expansionary bias of 
fiscal policy and added to current macroeconomic challenges. The very early adoption 
of  annual  budgets  between  2016  and  2023  reduced  the  reliability  of  macroeconomic 
and  budgetary  forecasts.  Various  budget  flexibility  rules  and  large  budget  reserves 
allowed  for  higher  discretionary  spending.  Ad  hoc  spending  decisions  were  often 
made at the end of the budget year or were enacted by government decrees throughout 
the  year  without  adequate  parliamentary  oversight  and  public  consultation,  in  turn 
reducing  budget  transparency.  The  national  fiscal  framework  has  not  led  to  a  more 
prudent  fiscal  stance  due  to  shortcomings  in  the  design  of  domestic  fiscal  rules,  in 
particular  due  to  a  debt  rule  with  procyclical  features  and  the  weak  enforcement  of 
medium-term budget planning, further eroded by the special provisions of the ‘state of 
danger’  regime.  Frequent  and  significant  revisions  of  fiscal  targets  have  undermined 
the  role  of  the  budget  as  an  anchor  for  market  participants  and  have  called  into 
question  the  credibility  of  the  medium-term  fiscal  plans.  Basing  medium-term  fiscal 
planning  on  multiannual  spending  ceilings,  as  set  out  in  the  revised  EU  fiscal  rules, 
may  help  address  the  expansionary  bias  of  fiscal  policy.  The  effectiveness  of  the 
national  fiscal  council  in  steering  public  discussions  on  fiscal  issues  remains 
constrained by limited mandate and resources.  

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(22) 

In accordance with Article 19(3), point (b), and Annex V, criterion 2.2 of Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. These are expected 
to  help  effectively  address  all  or  a  significant  subset  of  challenges  identified  in  the 
relevant  country-specific  recommendations.  Within  this  tight  timeframe,  proceeding 
swiftly  with  the  effective  implementation  of  the  plan,  including  the  REPowerEU 
chapter, is essential to boost Hungary’s long-term competitiveness through the green 
and digital transition, while ensuring social fairness. To deliver on the commitments of 
the  plan  by  August  2026,  it  is  essential  for  Hungary  to  significantly  accelerate  the 
implementation  of  reforms  and  investments,  first  by  swiftly  implementing  the 
necessary  measures  to  ensure  the  protection  of  the  EU’s  financial  interests.  The 
systematic involvement of local and regional authorities, social partners, civil society 
and  other  relevant  stakeholders  remains  essential  to  ensure  broad  ownership  for  the 
successful implementation of the recovery and resilience plan.  

(23)  As  part  of  the  mid-term  review  of  the  cohesion  policy  funds,  in  accordance  with 
Article  18  of  Regulation  (EU)  2021/1060,  Hungary  is  required  to  review  each 
programme  by  March  2025,  taking  into  account,  among  other  things,  the  challenges 
identified in the 2024 country-specific recommendations, as well as its national energy 
and climate plan. This  review  forms the basis for the definitive allocation of the EU 
funding  included  in  each  programme.  While  Hungary  has  made  progress  in 
implementing  cohesion  policy  and  the  European  Pillar  of  Social  Rights,  challenges 
remain  and  significant  social  and  regional  disparities  persist  between  the  least  and 
most developed districts of the country, as well as between urban and non-urban areas. 
Accelerating  implementation  of  cohesion  policy,  combined  with  strengthening 
administrative  capacity  at  sub-national  level  is  crucial.  The  priorities  agreed  in 
programmes remain relevant. It is of particular importance to see fast implementation 
of  the  investments  in  the  digital  and  green  transition,  including  basic  digital  skills 
development,  the  digital  transformation  of  businesses,  the  take-up  of  smart  city 
solutions, nature-based and net-zero technologies and water management, as well as of 
the territorial just transition plans. Hungary should also continue to work on integrated 
territorial  development  in  functional  areas  and  the  least  developed  districts.  Equally, 
the implementation of investments in social inclusion and poverty reduction, focusing 
on  children  and  the  most  deprived  districts,  as  well  as  the  comprehensive 
strengthening  of  basic  skills  and  improving  access  to  quality  mainstream  education 
and  lifelong  learning,  remain  a  priority.  In  this  regard,  structural  reforms  of  the 
education system, including by improving access to quality early childhood education 
and care, as well as targeted actions to address labour market challenges for vulnerable 
groups and build the capacity of social partners remain key. Resolving pending issues 
on  enabling  conditions  and  the  general  regime  of  conditionality  is  necessary  for 
Hungary to make full use of cohesion policy funds. 

(24) 

In  the  context  of  the  mid-term  review  of  cohesion  policy  programmes,  addressing 
energy poverty and intergenerational poverty through integrated interventions, with a 
focus  on  the  least  developed  districts  and  municipalities,  as  well  as  the  need  for  a 
strengthened  governance  and  differentiation  of  the  smart  specialisation  strategy  are 
areas that merit further attention. Hungary could  leverage the Strategic Technologies 
for  Europe  Platform  (STEP)  initiative  to  boost  investments  in  deep  and  digital 
technologies  (e.g.  Internet  of  Things,  big  data,  artificial  intelligence),  clean 
technologies  (e.g.  renewable  energy,  geothermal  energy)  and  biotechnologies 
(pharmaceuticals, medical products), whilst also  investing in skills and qualifications 
required to meet the labour demand in these sectors.  

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(25)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan  and  other  EU  funds,  Hungary  faces  several  additional  challenges  related  to  the 
business  environment,  the  skills  levels  and  integration  of  disadvantaged  groups  into 
the labour market, social assistance and social dialogue, and reliance on Russian fossil 
fuels. 

(26)  The  business  environment  continued  to  deteriorate,  primarily  due  to  increasing  state 
interventions  in  the  economy  and  frequent  ad  hoc  changes  to  the  regulatory 
framework. Hungary performs poorly in indicators  that measure competitiveness and 
regulatory quality. The high number of taxes increased further in 2024. In recent years, 
the number of sector-specific taxes levied on certain sectors and firms has increased. 
These  tend  to  be  in  sectors  where  foreign  ownership  is  high  (for  example,  retail, 
cement, construction and ceramic materials), creating a disproportionate burden on the 
firms  concerned  and  affecting  the  single  market.  Firms  complain  about  unequal 
treatment  and  arbitrariness  when  authorities  conduct  administrative  inspections  or 
decide on permits. Various state interventions are used to force foreign owners to sell 
their  firms,  facilitating  the  creation  of  public  or  government-connected  national 
champions. The government increasingly declares certain investment projects to be of 
‘strategic  importance  for  the  national  economy’  to  speed  up  and  lighten  the 
administrative  process.  The  criteria  used  by  the  government  are  not  transparent  and 
cannot be challenged in  court. The government continues to use its power to exempt 
certain  transactions  from  merger  control.  The  criteria  for  these  exemptions  are  not 
transparent,  and  no  formal  procedure  exists  to  contest  them.  The  government  also 
continues to make extensive use of its mandate to issue emergency decrees under the 
‘state of danger’ regime. Many of these decrees do not seem to relate to the invoked 
emergency  situation,  which  weakens  legal  certainty  and  interferes  with  normal 
business activity.  

(27)  Despite a high overall employment rate, some disadvantaged groups, such as the low-
educated, Roma and persons with a disability, still face barriers in accessing upskilling 
opportunities  and  entering  the  labour  market.  The  same  disadvantaged  groups  also 
tend  to  be  low  achievers  in  basic  skills  at  school,  leave  school  early,  become 
unemployed  or  inactive  and  rarely  enter  higher  education.  Inequalities  are  rooted  in 
the way the education system is organised, characterised by the concentration of socio-
economically  disadvantaged  pupils  at  certain  schools.  Between  2014  and  2022, 
significant  amounts  of  EU  cohesion  policy  funds  were  allocated  to  preventing  early 
school  leaving  and  implementing  active  labour  market  measures.  While  the 
employment rate of the low-skilled and Roma increased significantly over that period, 
it remains much lower than the overall employment rate. The disability employment 
gap remains  well above  the EU average.  Several  sectors face  skills  shortages, which 
makes  it  difficult  for  Hungary  to  shift  its  economy  to  a  high  value-added  growth 
model.  The  share  of  tertiary  graduates  is  one  of  the  lowest  in  the  EU,  which  poses 
challenges in  meeting the growing  demand for a highly skilled workforce. The short 
duration  of  unemployment  benefits  makes  it  difficult  for  people  to  participate  in 
reskilling and upskilling and find better matching jobs that could improve productivity 
and  competitiveness.  While  there  has  been  a  significant  increase  in  the  number  of 
foreign workers in recent years, this may not fully match the needs of sectors facing 
skills shortages and labour shortages.  

(28) 

In  the  past  decade,  poverty  indicators  have  improved  markedly  in  line  with  the 
increase in the employment rate. However, the severe material and social deprivation 
rate is still among the highest in the EU and has worsened among children, Roma and 

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in  remote  areas.  The  poverty-reducing  impact  of  social  transfers,  while  still 
comparable  to  other  EU  Member  States,  has  decreased  in  recent  years.  Despite  the 
high  inflationary  economic  environment,  some  social  benefits,  such  as  minimum 
income, family benefit and family tax benefits, have remained nominally unchanged. 
The adequacy of the minimum income and unemployment benefit is one of the lowest 
in  the  EU.  The  total  tax  burden  on  low  earners  and  reliance  on  value  added  tax  are 
high,  which  disproportionately  burdens  low-income  groups  in  the  context  of  non-
progressive, flat-rate personal income taxation. The share of people who spend more 
than  40%  of  their  household  income  on  housing  costs  has  also  increased  due  to 
inflation, energy and housing price hikes, and the lack of targeted support measures. 
Addressing  these  challenges  would  also  contribute  to  supporting  upward  social 
convergence, in line with the Commission services’ second-stage analysis based on the 
features of the Social Convergence Framework25. 

(29)  Despite  some  improvement,  social  dialogue  remains  weak  and  fragmented.  The 
tripartite  forum  in  the  private  sector,  which  comprises  the  government,  trade  unions 
and  employers’  associations,  has  limited  possibilities  to  influence  or  change  the 
government’s  plans.  Limited  social  dialogue  puts  employees  in  a  disadvantaged 
position,  including  in  wage  bargaining,  especially  in  the  public  sector.  The 
establishment of a separate employment status for certain groups of public employees 
has weakened their ability to defend their collective interests. In some cases, it has led 
to collective agreements becoming void and having to be renegotiated. Measures such 
as limiting teachers’ right to strike or the abolishment of collective bargaining in the 
health  sector  have  gradually  eroded  workers’  rights.  The  new  legislation  on  the 
collection of the trade union membership fees in the public sector could further erode 
trade  union  representativeness.  The  relevant  fora  in  the  public  sector  had  only  one 
meeting in 2023. 

(30)  Hungary  continues  to  rely  heavily  on  fossil  fuels,  and  its  efforts  to  increase  energy 
security  by  shifting  away  from  dependency  on  Russian  imports  are  slow.  Hungary’s 
share of renewable energy sources amounted to 25.7% in 2023, 18 percentage points 
below  the  EU  average.  The  share  of  Russian  crude  oil  and  gas  imports amounted  to 
64% and 75% in 2021 and 2023, respectively. Oil and gas account for two-thirds of its 
energy consumption. Hungary has one of the highest figures in the EU for fossil fuel 
subsidies as a share of GDP on account of subsidised energy prices for households.  

(31) 

In  light  of  the  Commission’s  in-depth  review  and  its  conclusion  on  the  existence  of 
imbalances,  recommendations under Article 6 of Regulation  (EU) No 1176/2011  are 
reflected  in  recommendations  (1),  (3)  and  (4)  below.  Policies  referred  to  in 
recommendations  (1)  and  (4)  help  to  address  vulnerabilities  linked  to  external  and 
government 
in 
referred 
recommendation (3) help to address vulnerabilities linked to price pressures.  

financing  needs  and  price  pressures.  Policies 

to 

HEREBY RECOMMENDS that Hungary take action in 2024 and 2025 to:  

1. 

25 
26 

Submit  the  medium-term  fiscal-structural  plan  in  a  timely  manner.  In  line  with  the 
requirements  of  the  reformed  Stability  and  Growth  Pact,  limit  the  growth  in  net 
expenditure26 in 2025 to a rate consistent with putting the general government  debt 

SWD(2024)132. 
According  to  Article  2(2)  of  Regulation  (EU)  2024/1263,  ‘net  expenditure’  means  government 
expenditure net of interest expenditure, discretionary revenue measures, expenditure on programmes of 
the  Union  fully  matched  by  revenue  from  Union  funds,  national  expenditure  on  co-financing  of 

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2. 

3. 

on a plausibly downward trajectory over the medium term and reducing the general 
government deficit towards the 3% of GDP Treaty reference value. Wind down the 
emergency  energy  support  measures  before  the  2024/2025  heating  season.  Pursue 
effective  coordination  and  clear  demarcation  of  macroeconomic  policies  to  ensure 
fiscal and external sustainability. Phase out remaining price and interest rate caps to 
reduce  distortive  effects  and  facilitate  the  smooth  transmission  of  monetary  policy. 
Target support measures in the housing sector to low-income households. Strengthen 
the medium-term budgetary framework, align the preparation of annual budgets with 
the budgetary year and limit discretion in the implementation of annual budgets.  

In light of prolonged delays, significantly accelerate the implementation of cohesion 
policy programmes and the recovery and resilience plan, including the REPowerEU 
chapter, ensuring completion of reforms and investments by August 2026, by swiftly 
implementing the necessary measures to ensure the protection of the EU’s financial 
interests  and  resolving pending  issues  on enabling conditions.  In the  context of the 
mid-term  review  of  cohesion  policy  programmes,  continue  focusing  on  the  agreed 
priorities, taking action to better address poverty, focusing on energy poverty and the 
least  developed  districts  and  municipalities,  and  improve  the  smart  specialisation 
strategy, while considering the opportunities provided by the Strategic Technologies 
for Europe Platform initiative to improve competitiveness.  

Improve the regulatory framework and enhance competition in product markets and 
services  by  avoiding  arbitrary  administrative  interventions  and  the  selective  use  of 
tailor-made  legislation  providing  undue  advantage  or  disadvantage  to  specific 
companies, by applying competition scrutiny systematically to business transactions 
and by reducing the use of emergency measures to what is strictly necessary, in line 
with the principles of the single market and the rule of law. Improve the adequacy of 
the social protection system, including unemployment benefits. Improve educational 
attainment  levels  as  well  as  access  to  effective  active  labour  market  measures,  in 
particular upskilling and reskilling opportunities for the most disadvantaged groups, 
and ensure effective social dialogue. 

4. 

Reduce  overall  reliance  on  fossil  fuels,  accelerate  the  diversification  of  gas  supply 
towards non-Russian sources, and take steps to phase out fossil fuel subsidies.  

Done at Brussels, 

For the Council 
The President 

programmes  funded  by  the  Union,  cyclical  elements  of  unemployment  benefit  expenditure,  and  one-
offs and other temporary measures. 

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