Sustaining the Momentum of Fiscal Reform in Hungary

Abstract

Hungary has faced a considerable challenge to regain credibility following persistent and high fiscal deficits. Efforts during recent years have produced substantial results. The fiscal deficit has been brought down significantly and, despite the recession, fiscal consolidation has continued to help restore foreign investor confidence. Short-term fiscal adjustment needed to be accompanied by measures that can durably improve Hungary’s fiscal position, however, and it has; the adoption in 2009 of a pension reform and a Fiscal Responsibility Act, creating a Fiscal Council and fiscal rules hold that potential. These results should not lead to complacency. Some expenditure cuts, such as lower public salaries, may prove difficult to sustain. Fiscal consolidation in the past owed both to expenditure cuts and revenue increases. As a result, and despite an important tax reform starting in the second half of 2009 and extended from the beginning of 2010, marginal tax rates remain high, with adverse effects on the labour market and growth. Going forward, the government needs to contain public expenditure growth and improve public administration efficiency to reduce the public “footprint” on the economy and allow lower taxes. Key areas that warrant intensified efforts are public administration and health. The government should help secure a prominent role for the Fiscal Council and sufficient experience needs to accumulate before considering any substantial changes in the fiscal rules. Finally, improvements to make taxation less distortive should continue by further reducing tax wedges, and increasing the role of wealth taxes, notably for local governments. This Working Paper relates to the 2010 OECD Economic Survey of Hungary (www.oecd.org/eco/surveys/hungary). Soutenir le rythme de la réforme budgétaire en Hongrie Le défi auquel se trouve confrontée la Hongrie est de restaurer sa crédibilité après avoir accusé de lourds déficits persistants. Les efforts déployés ces dernières années ont été très fructueux. Le déficit budgétaire a été nettement réduit et, malgré la récession, l’assainissement des finances publiques a raffermi la confiance des investisseurs étrangers. L’ajustement budgétaire à court terme a dû néanmoins se doubler de mesures à même d’améliorer durablement les finances publiques, ce qui a été fait, l’adoption, en 2009, d’une réforme des retraites et d’une loi de responsabilité budgétaire, mettant en place un Conseil budgétaire et des règles de politique budgétaire, y a contribué Mais la tâche n’est pas terminée. Certaines réductions de dépenses, notamment du côté des rémunérations dans le secteur public, pourraient être difficiles à mettre en oeuvre. Dans le passé l’assainissement budgétaire a été obtenu grâce à la réduction des dépenses et à l’augmentation des recettes. En conséquence, et malgré l’importante réforme fiscale du second semestre 2009 qui continue au début de 2010, les taux marginaux d’imposition restent élevés, ce qui a des effets négatifs sur le marché du travail et sur la croissance. Pour l’a...

Assessing the Efficiency of Welfare Spending in Slovenia with Data Envelopment Analysis

“…The DEA method does not require the specification of a production function since this is a nonparametric technique. Yet several potential caveats should be mentioned regarding its implementation (Sutherland et al 2007;Mattina and Gunnarsson, 2007;Forthun and Hagemann, 2010):…”

“…Measuring public administration efficiency is difficult due to the selection of relevant outcome indicators. The estimates here are based on the approach proposed by Forthun and Hagemann (2010), first applied by Afonso et al (2006). A synthetic public administration outcome indicator is constructed, with equal weights, using international surveys on the quality of justice, level of corruption, government inefficiency and bureaucracy.…”