On Wednesday, the European Commission released its 2018 European Semester country report for Hungary. Fidesz immediately responded by accusing the EC of interfering in Hungary’s elections, even though the annual report is released at the same time every year.
The European Semester is a cycle of economic and fiscal policy coordination within the EU that focuses on structural reforms, fiscal policy and macroeconomic imbalances. Generally speaking, the report has a positive economic outlook for Hungary, but clearly states that investment and economic growth in Hungary are being fueled by EU funds.
The Commission points out that Hungary is a beneficiary of significant EU funds and can receive up to EUR 25 billion until 2020.
- This represents around 3% of annual GDP over the period of 2014-2018 and 43% of public investment.
- By December 31, 2017, an estimated EUR 23.5 billion (94% percent of the total) had been allocated to projects on the ground.
The report highlights problems affecting the justice system, specifically the independence of the judiciary, judicial appointments, the prosecutorial service’s fight against corruption, and public confidence in the judiciary.
The report also says
- The tax wedge on low-income earners is high in comparison to other EU countries.
- Some indicators suggest that Hungary’s complex tax rules may be used by multinationals in aggressive tax-planning structures.
- Hungary faces a pronounced productivity challenge.
- Regulatory barriers in services and retail trade and unpredictability of regulation hamper the efficient reallocation of resources.
- Institutional weaknesses and human capital inadequacies also constrain productivity growth.
- Weaknesses in institutional soundness and governance could weigh on the country’s economic convergence.
- Limited transparency and quality of policy making is a source of uncertainty for investors.
- There are deficits in evidence-based policy formulation and stakeholder engagement.
- Hungary performs weakly on the accessibility and quality of public information.
- Challenges concerning the functioning of the justice system require close monitoring.
- Although the efficiency of the justice system (length of civil, commercial and administrative proceedings) is in general above average, businesses’ perception of judicial independence remains low.
- Recent amendments to the rules on the selection of judges will be monitored as regards their potential impact on judicial independence.
- The organization of the prosecution service to fight corruption should still be improved.
- Available indicators point to notable corruption risks, and there are gaps in the anti-corruption framework.
- The education and healthcare systems reveal shortcomings in fostering the development of human capital.
- Education outcomes in basic skills are significantly below the EU average.
- The impact of socioeconomic background on education outcomes is among the highest in the EU.
- Disadvantaged students, in particular Roma, remain concentrated in certain schools.
- Health outcomes lag behind most other EU countries, reflecting the limited effectiveness of healthcare provision.
- Employment policies face the challenge of mobilizing labor reserves fast enough to meet strong labour demand.
- While the public work scheme still remains the main active labor market policy, it has had limited success in bringing participants back to the labor market.
- The high gender employment gap points to untapped labor reserves.
- The low employment rate of Roma remains an important challenge.
- Vulnerable groups continue to face high risk of poverty.
- The share of population at risk of poverty and social exclusion is still above the EU average.
- Children and the Roma remain much more exposed to the risk of poverty than the rest of the population.
- Changes in the tax and benefit system contributed to rising income inequality.
- There has been a clear shift from social benefits towards work-related family supports and in-kind benefits, which are not sufficiently targeted to the poor.
- The adequacy of social assistance and unemployment benefits has declined.
- While homeownership subsidies expanded, there is no improvement in social housing.