OECD urges Hungarian policy change

5 Feb 19

Hungary should focus its efforts on inclusive reforms, such as overhauling public pensions and the healthcare system, the OECD has urged.

Although the Hungarian economy is growing – driven by high employment levels – a shift in government policy is needed to ensure green growth and better social benefits, the Paris-based organisation said in its latest Economic Survey of the country.

The survey highlighted that public spending on pensions is putting pressure on public finances – despite being one of the lowest in the OECD.

Spending on public pensions is expected to account for around 9% of the country’s GDP by 2020, increasing to 11.2% by 2070. And this could rise by as much as a further 4% of GDP if economic growth is weak or if people live longer than projected, the report added.

“Ageing will weigh on public finances and create challenges for service provisions,” the OECD stated, adding that raising the retirement age to 65 – from 62 currently – by 2022 could help address the pressure on public finances. It also called for the retirement age to be raised to 70 by 2027, to further cover the cost of the ageing population.

One-fifth of pensioners in Hungary receive pension benefits below the poverty line, which also reflects the ongoing issue of low-wage work.

To address this, the OECD urged Hungary to improve employment prospects, so people can invest more in their pensions. It also called for the government to introduce a basic state pension to guarantee a minimum income for all pensioners.

The report also predicted that spending on health care in Hungary will equate to 5.1% of GDP in 2020 and 5.7% in 2070 – lower than OECD countries – and stated that hospitals are operating under constraints. In response, it called for reform of hospitals, to make them more specialised.

In terms of regional development, the report showed that western and central parts of Hungary have grown faster than the rest of the country.

The OECD said local authorities should be given more powers to invest in projects that benefit the local economy, rather than relying on projects led by central government. It also called for more investment in public transport to improve urban air quality.

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