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Sustaining the Momentum of Fiscal Reform in Hungary

Author

Listed:
  • Colin Forthun

    (OECD)

  • Robert P. Hagemann

    (OECD)

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’avenir, il faut que le gouvernement enraye la croissance des dépenses publiques et accroisse l’efficience de l’administration afin d’alléger l’« empreinte » publique sur l’économie et de permettre des baisses d’impôts. L’administration publique et la santé sont les principaux domaines où l’effort devrait être intensifié. Il faudrait que le gouvernement fasse en sorte que le Conseil budgétaire puisse jouer un rôle prééminent et une expérience suffisante sera nécessaire avant d’envisager toute modification substantielle des règles de politique budgétaire. Enfin, il faudra poursuivre l’action en vue d’une fiscalité qui crée moins de distorsions, en réduisant encore les coins fiscaux et en donnant plus de poids à la taxation du patrimoine, notamment au niveau des collectivités locales. Ce document de travail se rapporte à l’Étude économique de l’OCDE de la Hongrie, 2009 (www.oecd.org/eco/etudes/hongrie).

Suggested Citation

  • Colin Forthun & Robert P. Hagemann, 2010. "Sustaining the Momentum of Fiscal Reform in Hungary," OECD Economics Department Working Papers 802, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:802-en
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    File URL: http://dx.doi.org/10.1787/5km7pf8fkg24-en
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    Keywords

    budgets; consolidation budgétaire; debt; deficit; dette; déficit; dépenses publiques; efficacité; efficiency; finances publiques; fiscal consolidation; fiscal policy; fiscal rules; fiscal sustainability; imposition; politique budgétaire; public expenditure; public services; règles budgétaires; services publics; soutenabilité des finances publiques; taxation;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H59 - Public Economics - - National Government Expenditures and Related Policies - - - Other

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