- The document summarizes an OECD economic survey of Hungary, noting that while growth has recovered recently, public debt remains high, non-performing loans are still an issue, and labor market participation could be improved. - Key recommendations include reducing spending to lower the deficit, increasing competition in banking, relying more on consumption taxes, removing barriers to investment, expanding early childhood programs, and increasing funding for education. - Enhancing workforce skills through training programs, expanding parental leave incentives, and improving graduation rates were also emphasized.

1. 2016 OECD ECONOMIC
SURVEY OF HUNGARY
Investing in the Future
Budapest, 6th
May
@OECD
@OECDeconomy
http://www.oecd.org/eco/surveys/economic-survey-hungary.htm

2. 2
Growth has recovered recently
Annual GDP growth (volume)
Source: OECD (2016), OECD Analytical Database.

3. 3
Public debt is decreasing
Source: OECD (2016), OECD Economic Outlook: Statistics and Projections (database).
Public debt

4. 4
Vulnerabilities have declined
Source: Magyar Nemzeti Bank.
Household loans in domestic and foreign currencies
 Household FX loans have been replaced by forint denominated loans

5. 5
The current account deficit is now in surplus
Current account balance

6. 6
The labour market lacks inclusiveness
Source: OECD (2016), OECD Social and Welfare Statistics (database).
Youth unemployment
Not in education or employment (NEET), aged 20-24, 2014

7. 7
The labour market lacks inclusiveness
(con’t)
Source: OECD (2016), OECD Social and Welfare Statistics (database).
Female labour force participation rate
Aged 15-65, 2014

8. 8
Income levels remain low
GNI per capita, 2014
Source: World Bank, International Comparison Program database.

9. 9
Labour productivity has been weak
Labour productivity
Average annual growth rate, 2008-2014
Source: OECD (2016), OECD Economic Outlook: Statistics and Projections (database).

10. 10
Investment is lower than expected
Source: OECD (2015), OECD calculations based on OECD Economic Outlook: Statistics and Projections
(database).
1. The baseline scenario is the projected development of investment from 2008 onwards, based on a simple accelerator model,
estimated over the period Q1 1996-Q4 2007.

11. Bolstering investment
11

12.  Step-up offloading of non-performing assets by the asset management company
 Expand capital surcharges on non-performing loans held by banks
 Bolster banking competition by selling stakes in state-owned banks
12
Non-performing loans are high
Non-performing loans to total loans held by banks
Source: Magyar Nemzeti Bank.

13.  Fund social security cuts with income taxes to broaden the tax base
 Rely more on consumption taxes
 Step up the fight against VAT fraud 13
The labour tax-wedge is high
Average tax wedge, 2015
Single person at 100% of average earnings, no child
Source: OECD (2016), Taxing wages database.
Note: The average tax wedge is the sum of income taxes and social security contributions as a percentage of labour
costs.

14.  Continue to cut red tape
 Make better use of regulatory impact assessments
14
Barriers to entrepreneurship are still
significant
Barriers to entrepreneurship
Index scale of 0-6 from least to most restrictive
Source: OECD (2014), OECD Product Market Regulation Statistics (database).

15. • Make network sectors more competitive:
 Introduce market-based pricing to attract new investment
 Secure non-discriminatory access to networks 15
Telecommunication prices are high
Source: OECD (2015), OECD Digital Economy Outlook 2015.
Monthly prices for mobile services
Note: Prices for a standard package for telecommunication services.

16.  Increase and simplify feed-in tariffs to spur investment in renewables
16
Greenhouse gas emissions can be reduced
Total greenhouse gas emissions divided by GDP
Source: OECD (2015), "Greenhouse gas emissions by source", OECD Environment Statistics (database).

17. Enhancing skills
17

18.  Increase the focus on training in public work schemes
 Scale up the wage subsidy programme
18
The low-skilled do not participate
enough in the labour market
Employment rates of people with below upper-secondary education
Aged 25-64
Source: OECD (2015), Education at a Glance 2015.

19.  Expand early childcare
 Provide incentives for fathers to share parental leave
19
Mothers do not participate enough in
the workforce
Employment rates for mothers with youngest child aged 0-2
Source: OECD (2015), Pensions at a Glance 2015.

20.  Improve working conditions of teachers
 Postpone tracking and extend compulsory grammar school to enhance
general skills
20
Educational outcomes could be improved
Student performance in mathematics in PISA
Source: OECD (2014), PISA 2012 Database.

21.  Continue integrating vocational training programmes into vocational
schools
21
Investment in vocational training is key
Share of people having a positive view of vocational education
% of positive responses

22.  Increase funding
 Expand means tested support for disadvantaged students
 Strengthen career counselling
22
Completion rates in tertiary education are low
Tertiary completion rates
Source: OECD (2013), Education at a Glance 2013.

23. • Macroeconomic policies
– Public debt and spending are still high.
– Non-performing loans are high and credit growth remains subdued.
– Labour taxation is high.
• Bolstering private investment
– Frequent changes in the regulatory framework undermine investment incentives.
– The effectiveness of the competition framework is reduced by exemptions to the application
of competition policy and entry barriers in network industries.
• Enhancing skills to boost growth
– Few public work scheme participants find jobs on the primary labour market.
– Young mothers have low labour market participation.
– Changing technologies are increasingly making workers’ skills obsolete.
– Graduates from the vocational training programmes face high unemployment.
– Tertiary education graduation rates remain low and labour market outcomes are uneven.
23
Main findings

24. • Macroeconomic policies
– Reduce spending to lower the structural deficit.
– Step-up offloading of non-performing assets of the asset management company.
– Bolster competition in the banking sector by selling stakes in state-owned banks.
– Increase the reliance on non-distortive consumption taxes.
• Bolstering private investment
– Remove sector exemptions to apply the modern competition policy framework as widely as
possible.
– Only allow competition limiting mergers on clear public interest grounds.
– Secure non-discriminatory third party access in network sectors.
• Enhancing skills to boost growth
– Focus the public work schemes focus on training and on programmes that get workers into the
primary labour market.
– Expand early childhood care. Reduce length of parental leave and provide incentives for paternity
leave.
– Creating a tool set, including individual learning accounts, to promote lifelong learning.
– Integrate the vocational training programmes into secondary vocational schools.
– Increase funding and expand means-tested support for disadvantaged students. 24
Key recommendations

25. 25
For more information
http://www.oecd.org/eco/surveys/economic-survey-hungary.htm
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