In the Country Report Hungary 2017 published earlier today, the European Commission (EC) applauds tax reductions, economic growth, job creation efforts and recent Government measures. The report also confirms that Hungary has been growing stronger, and economic performance has been gaining recognition.

The EC’s analysis notes that the external and internal balances of the Hungarian economy have improved in parallel with steady GDP growth of an increasingly stable composition, reducing both debt and exposure to external risks. Thanks to the Government’s prudent fiscal policy, the general government budget deficit is expected to remain well below 3 percent of GDP. As a result of falling deficits and accelerating GDP growth, the government debt-to-GDP ratio is seen to decline to 71 percent by 2018. Improving competitiveness and export performance have led to massive foreign trade and current account surpluses, the report points out.

The report also emphasises that the multi-step wage increases and payroll tax cuts about to be implemented according to the wage agreement concluded in November 2016 will substantially boost economic growth, reduce taxes and contribute to productivity growth.  Due to recently introduced tax measures, the efficiency of tax collection has improved and the number of tax fraud cases has fallen. Along with these measures, the reduction of the corporate income tax rate to 9 percent will also help boost the country’s competitiveness.

With regard to the financial system, the critical remarks of prior reports have given way to the recognition that Government measures in recent years have been a significant factor behind the upturn of retail and corporate lending in 2016. The financing and capital positions of the banks are sound, and with the forint conversion of forex loans the largest risk factor which the banking system had faced has been removed.

The report also remarks that labour market indices have improved significantly, and not only the number of jobless people has fallen but that of the long-term unemployed and the youth unemployment rate as well. On the other hand, the activity rate, the employment rare and the supply of skilled labour have increased, and the bulk of new jobs were created within the private sector. The report also highlights several other measures, for example those aiming to reduce the tax wedge, eliminate gender inequality at workplaces and improve labour mobility.

The Commission has also outlined the achievements of the public work scheme. The number of people employed within the scheme has declined, reflecting improving labour market processes. The Commission welcomes the fact that the Government does not plan to extend the programme and measures for assisting the transition to the primary labour market have been adopted. In the observed period, poverty among children and the Roma minority has diminished, the report finds.

(Ministry for National Economy)