European Commission: Economy on track, but Hungary slow to act on recommendations

Budapest, February 22 (MTI) – The European Commission acknowledged Hungary’s “solid” economic performance and improved labour market situation, but said the country had made “limited progress” in addressing recommendations made in 2016 in a European Semester report released on Wednesday.

The EC said Hungary had made “some progress” in reducing the tax wedge for low-income earners and facilitating the transition of fostered workers to the primary labour market. But it said “limited progress” had been made in reducing sectoral taxes, improving transparency and competition in public procurement procedures, improving the adequacy of social and unemployment benefits and bettering the educational outcomes of disadvantaged groups, in particular Roma.

The EC noted that Hungary’s external balances, internal financial balances and banking system had all strengthened, but said that low corporate investment was holding back productivity growth.

The EC said the government’s 2017 payroll tax and corporate tax reductions had reduced the tax burden by about 1.5 percentage point, improving Hungary’s competitiveness, but added that the tax wedge on labour costs remains high for several groups, especially low-income workers without children. Sectoral taxes have been declining since 2013 but “still tend to complicate the tax system and weaken investor confidence”, the EC said.

The EC remarked that a crackdown on tax evasion and fraud had “produced tangible results”.

The EC called Hungary’s regulatory environment “unstable” and said stakeholder engagement and evidence-based policy making is “insufficient”. Corruption risks “remain high”, it added.