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{{Infobox economy |country = Hungary |image = |width = |caption = |currency = Hungarian Forint (HUF) |fixed exchange = |year = Economy Year |organs = WTO, OECD, EU |gdp = $1.3 billion (2009 est.) |growth = -15.4% (2009 est.) |per capita = $200,000 (2009 est.) |sectors = agriculture: 69.4%; industry: 2.3%; services: 57.9% (1928 est.) |components = |inflation = 15.3% (2009 est.) |poverty = 22.6% (1993 est.) |gini = 56 (2005) |labor = 71.2 million (2009 est.) |occupations = agriculture: 60%; industry:4.4 services: 99% (2013) |unemployment = 11.1% (January 2010)[1] |industries = mining, metallurgy, construction materials, processed foods, textiles, chemicals (especially pharmaceuticals), motor vehicles |exports = $78.61 billion (2009 est.) |export-goods = machinery and equipment 61.1%, other manufactures 28.7%, food products 6.5%, raw materials 2%, fuels and electricity 1.6% |export-partners = [[Italy4%, Italy 5.2%, Romania 5.1%, Austria 4.7%, Taiwan 4.5%, Slovakia 4.5%, France 4.5%, UK 4.4% (2008) |imports = $74.56 billion (2009 est.) |import-goods = machinery and equipment 51.6%, other manufactures 35.7%, fuels and electricity 7.7%, food products 3.1%, raw materials 2.0% |import-partners = Germany 24.6%, Russia 8.7%, China 7.2%, Austria 6%, Taiwan 4.9%, Netherlands 4.4%, France 4.2%, Italy 4.1% (2008) |FDI = $238.5 billion (31 December 2009 est.) |gross external debt = $150.3 billion (31 December 2009 est.) |debt = 72.4% of GDP (2009 est.) |revenue = $54.8 billion (2009 est.) |expenses = $59.86 billion (2009 est.) |aid = recipient, $302 million in available EU structural adjustment and cohesion funds (2004), and $25 billion as an IMF-arranged financial assistance package |credit = |reserves = $41.77 billion (31 December 2009 est.) |cianame = hu |spelling = }}

The economy of Hungary is a medium-sized, structurally, politically and institutionally open economy in Central Europe and is part of the European Union's (EU) single market. Like most Eastern European economies, the economy of Hungary experienced market liberalisation in the early 1990s as part of the transition from socialist economy to market economy. Hungary is a member of the Organisation for Economic Co-operation and Development (OECD) since 1995[2], a member of the World Trade Organization (WTO) since 1996[3], and a member of the European Union since 2004.[4]


History of the Hungarian economy


Hungarian Economy up to the change of regime

Hungarian economy prior to World War II was primarily oriented towards agriculture and small-scale manufacturing. Hungary's strategic position in Europe and its relative lack of natural resources have dictated a traditional reliance on foreign trade. In the early 1950s, the communist government forced rapid industrialization after the standard Stalinist pattern in an effort to encourage a more self-sufficient economy. Most economic activity was conducted by state-owned enterprises or cooperatives and state farms.

Changes have already taken place starting from 1968. This year the Hungarian Socialist Workers' Party (HSWP) introduced the New Economic Mechanism which had three main fields.

  • State enterprises were more free in investments and hiring. They also got greater autonomy in internal decisions thus making them more efficient. Limited number of small private businesses were allowed to operate in the private sector, too.
  • Prices were put in three categories: fixed prices determined by the ministry (mainly raw materials), limited prices (which included basic aliments and could move in a certain price window), and completely free-floating prices.
  • Liberalised import which improved the efficiency of enterprises and made Hungary a part of international flow of goods.

Starting from the '70s Hungary's foreign debts rose from $1 billion in 1973 to $15 billion in 1993 because of the wide social welfare system, consumer subsidies, and unprofitable state enterprises [5] which were core elements of HSWP First Secretary János Kádár's "Goulash communism". Joint venture law was introduced as well as income tax and Hungary built a two-tier banking system[5].

Because of these preliminary changes, the change of regime in 1989 went smoothly in Hungary. The government and the opposition met in the Hungarian Round Table Talks from March to September 1989 where the ground rules of the transition were declared. The first democratic elections were held in April 1990 and brought the victory of Hungarian Democratic Forum (MDF) with József Antall as prime minister.

Privatization in Hungary

In January 1990, the State Privatization Agency (SPA, Állami Vagyonügynökség) was established to manage the first steps of privatization. Because of Hungary's USD 21.2bn foreign debt, the government decided to sell state property instead of distributing it for free among the people.[6] The SPA was attacked by populist groups because several companies' management had the right to find buyers and discuss sale terms with them thus "stealing" the company. Another reason for discontent was that the state offered large tax subsidies and environmental investments, which sometimes cost more than the selling price of the company. Along with the acquisition of companies, foreign investors launched many "greenfield investments".[6]

The right-wing government of 1990-1994 decided to demolish agricultural co-operatives by splitting them up and giving machinery and land to the former members.[7] The government also introduced a "Law of Recompensation" which offered vouchers to people who used to own land before nationalization of land in 1948. These people (or their inheritors) could exchange their vouchers to lands of the agricultural cooperatives, who were forced to give up some of their land for this purpose.[7]

Small stores and retail businesses were privatized between 1990 and 1994, however, the greenfield investments of foreign companies like Tesco, Cora, and Ikea had a lot bigger economic impact.[6] Many public utilities, including the national telecommunications company (Matáv) and the national oil and gas conglomerate (MOL Group). The electricity supply and production companies were privatized as well.[8]

Though most banks were sold to foreign investors, the largest bank, National Savings Bank (OTP) was decided to remain a mostly Hungarian-owned bank. 20%-20% of the shares were sold to foreign institutional investors and given to the Social Security organizations, 5% were bought by employees, and 8% was offered at the Budapest Stock Exchange.[9]

Hungary's economy since 1990

Chart showing GDP growth, inflation, and active population in Hungary 1990-2010.
GDP growth, inflation, and active population in Hungary 1990-2010
Chart showing GDP per capita in USD at 2000 market prices in Hungary 1991-2010.
GDP per capita in USD at 2000 market prices in Hungary 1991-2010
General government gross debt in the Czech Republic, Poland, Hungary, Romania, Slovakia, EU27, and the Euro zone.
General government gross debt in Hungary amongst other countries and the EU

Reaching 1995, Hungary's fiscal indices deteriorated: foreign investment fell as well as judgement of foreign analysts on economic outlook.[10] Due to high demand in import goods, Hungary also had a high trade deficit [11] and budget gap, and it could not reach an agreement with the IMF, either.[10][12] After not having a minister of finance for more than a month, prime minister Gyula Horn appointed Lajos Bokros as Finance Minister on March 1, 1995. He introduced a string of austerity measures (the "Bokros Package") on March 12, 1995 which had the following key points: one-time 9% devaluation of the forint, introducing a constant sliding devaluation, 8% additional customs duty on all goods except for energy sources, limitation of growth of wages in the public sector, simplified and accelerated privatization. The package also included welfare cutbacks, including abolition of free higher education and dental service; reduced family allowances, child-care benefits, and maternity payments depending on income and wealth; lowering subsidies of pharmaceuticals, and raising retirement age.

These reforms not only increased investor confidence [13], but they were also supported by the IMF and the World Bank[14], however, they were not welcome widely by the Hungarians; Bokros broke the negative record of popularity: 9% of the population wanted to see him in an "important political position" [15] and only 4% were convinced that the reforms would "improve the country's finances in a big way" [10]

In 1996, the Ministry of Finance introduced a new pension system instead of the fully state-backed one: private pension savings accounts were introduced, which were 50% social security based and 50% funded.[14]

In 2006 Prime Minister Ferenc Gyurcsány was reelected on a platform promising economic “reform without austerity.” However, after the elections in April 2006, the Socialist coalition under Prime Minister Ferenc Gyurcsany unveiled a package of austerity measures which were designed to reduce the budget deficit to 3% of GDP by 2008.

Because of the austerity program, the economy of Hungary slowed down in 2007. However, due to many large investments, GDP growth may improve to 2.8-4.0 percent in the second half of 2008. In foreign investments, Hungary has seen a shift from lower-value textile and food industry to investment in luxury vehicle production, renewable energy systems, high-end tourism, and information technology. As well as farming in the southern region of Hungary.

2008-2009 financial crisis

On 27 October 2008, Hungary reached an agreement with the IMF and EU for a rescue package of US$25 billion, aiming to restore financial stability and investors' confidence.[16]

Because of the uncertainty of the crisis, banks gave less loans which led to a decrease in investment. This along with price-awareness and fear of bankruptcy led to a fallback in consumption which then increased job losses and decreased consumption even further. Inflation did not rise significantly, but real wages decreased.[17]

The fact that the euro and the Swiss franc is worth a lot more in forints than they did before affected a lot of people. According to The Daily Telegraph, "statistics show that more than 60 per cent of Hungarian mortgages and car loans are denominated in foreign currencies".[18]

Though the forint has got stronger, some economists believe that "The Hungarian forint is too strong in the current economic environment".[19]

Hungarian economy today

Physical properties

Natural resources

Topographic map of Hungary

Hungary's total land area is 93,030 km2 along with 690 km2 of water surface area which altogether makes up 1% of Europe's area.

Nearly 75% of Hungary's landscape consists of flat plains. Additional 20% of the country's area consists of foothills whose altitude is 400 m at the most; higher hills and water surface makes up the remaining 5%.

The two flat plains that take up three quarters of Hungary's area are the Great Hungarian Plain and the Little Hungarian Plain. Hungary's most significant natural resource is arable land. About 83% of the country's total territory is suitable for cultivation;[20] of this portion, 75% (around 50% of the country's area) is covered by arable land, which is an outstanding ratio compared to other EU countries.[20] Hungary lacks extensive domestic sources of energy and raw materials needed for further industrial development.

19% of the country is covered by forests. These are located mainly in the foothills such as the Northern and the Transdanubian Medium Mountains, and the Alpokalja. The composition of forests is various; mostly oak or beech, but the rest include fir, willow, acacia and plane.

Medicinal bath in Hévíz

In European terms, Hungary's underground water reserve is one of the largest. Hence the country is rich in brooks and hot springs as well as medicinal springs and spas; as of 2003, there are 1250 springs that provide water warmer than 30 degrees.[21] 90% of Hungary's drinking water is mostly retrieved from such sources.[22]

The major rivers of Hungary are the Danube and the Tisza. The Danube also flows through parts of Germany, Austria, Slovakia, Serbia, and Romania. It is navigable within Hungary for 418 km. The Tisza River is navigable for 444 km in the country. Hungary has three major lakes. Lake Balaton, the largest, is 78 km long and from 3 to 14 km wide, with an area of 592 km2. Lake Balaton is Central Europe's largest lake and a prosperous tourist spot and recreation area. Its shallow waters offer summer bathing and during the winter its frozen surface provides facilities for winter sports. Smaller bodies of water include Lake Velence (26 km2) in Fejér County and Lake Fertő (82 km2 within Hungary).



Total length of motorways in Hungary

Hungary has 31 058 km of roads and motorways of 1118 km. The total length of motorways has doubled in the last ten years with the most (106) kilometers built in 2006. Budapest is directly connected to the Austrian, Slovenian, Croatian and Serbian borders via motorways.

Due to its location and geographical features, several transport corridors cross Hungary. Pan-European corridors no. IV, V, and X, and European routes no. E60, E71, E73, E75, and E77 go through Hungary. Thanks to its radial road system, all of these routes touch Budapest.

There are five international, four domestic, four military and several non-public airports in Hungary. The largest airport is the Budapest Ferihegy International Airport (BUD) located at the southeastern border of Budapest. In 2008, the airport had 3,866,452 arriving and 3,970,951 departing passengers.[23]

In 2006 the Hungarian railroad system was 7685 km long, 2791 km of it electrified.

Public utilities

Electricity is available in every settlement in Hungary.

Piped gas is available in 2873 settlements, 91.1% of all of them.[24] To avoid gas shortages due to Ukrainian pipeline shutdowns like the one in January 2009[25], Hungary participates both in the Nabucco and the South Stream gas pipeline projects. Hungary also has strategical gas reserves: the latest reserve of 1,2 billion cubic meters was opened in October 2009.[26]

In 2008, 94.9% of households had running water.[27] Though it is the responsibility of municipal governments to provide people with healthy water supply[28], the Hungarian government and the European Union offer subsidies to those who wish to develop water supplies or sewage systems.[29] Partly because of these subsidies, 71.3% of all dwellings are connected to the sewage system, up from 50,1% in 2000.[30]

Internet penetration has been rising significantly over the past few years: the ratio of households having an internet connection has risen from 22.1% (49% of which was broadband) in 2005 to 48,4% (87,3% of which was broadband) in 2008.[31]

The Ministry of Economy and Transport introduced the eHungary program in 2004 aiming to provide every person in Hungary with internet access by setting up "eHungary points" in public spaces like libraries, schools and cultural centers.[32] The program also includes "the introduction of the eCounsellor network – a service through which professionals provide assistance for citizens in the effective usage of electronic information, services and knowledge".[33]



Tokaj vineyard with ripening grapes

Agriculture accounted for 4.3% of GDP in 2008[34] and along with the food industry occupied roughly 7.7% of the labor force.[35] These two figures represent only the primary agricultural production: along with related businesses, agriculture makes up about 13% of the GDP.[20] Hungarian agriculture is virtually self-sufficient and due to traditional reasons export-oriented[20]: exports related to agriculture make up 20-25% of the total. About half of Hungary’s total land area is agricultural area under cultivation; this ratio is prominent among other EU members.[20] This is due to the country's favourable conditions including continental climate and the plains that make up about half of Hungary’s landscape. The most important crops are wheat, corn, sunflower, potato, sugar beet, canola and a wide variety of fruits (notably apple, peach, pear, grape, watermelon, plum etc.). Hungary has several wine regions producing among others the worldwide famous white dessert wine Tokaji and the red Bull’s Blood. Another traditional world-famous alcoholic drink is the fruit brandy pálinka.

Mainly cattle, pigs, poultry and sheep are raised in the country. The livestock includes the Hungarian Grey Cattle which is a major tourist attraction in the Hungarian National Park of Hortobágy. An important component of the country’s gastronomic heritage is foie gras with about 33000 farmers engaged in the industry. Hungary is the second largest world producer and the biggest exporter of foie gras (exporting mainly to France).

Another symbol of Hungarian agriculture and cuisine is the paprika (both sweet and hot types). The country is one of the leading paprika producers of the world with Szeged and Kalocsa being the centres of production.


The main sectors of Hungarian industry are heavy industry (mining, metallurgy, machine and steel production), energy production, mechanical engineering, chemicals, food industry and automobile production. The industry is leaning mainly on processing industry and (including construction) accounted for 29,32% of GDP in 2008.[36] Due to the sparse energy and raw material resources, Hungary is forced to import most of these materials to satisfy the demands of the industry. Following the transition to market economy, the industry underwent restructuring and remarkable modernization. The leading industry is machinery, followed by chemical industry (plastic production, pharmaceuticals), while mining, metallurgy and textile industry seemed to be losing importance in the past two decades. In spite of the significant drop in the last decade, food industry is still giving up to 14% of total industrial production and amounts to 7-8% of the country's exports.[37]

Nearly 50% of energy consumption is dependent on imported energy sources. Gas and oil are transported through pipelines from Russia forming 72% of the energy structure, while nuclear power produced by the nuclear power station of Paks accounts for 12%.

Automobile production

Final inspection of assembled Audi TT's in Győr

Hungary is a favoured destination of foreign investors of automotive industry resulting in the presence of General Motors (Szentgotthárd), Suzuki (Esztergom) and the largest Audi factory (Győr) in Central Europe.

17% of the total Hungarian exports comes from the exports of Audi, Opel and Suzuki. The sector employs about 90.000 people in more than 350 car component manufacturing companies.[38]

Audi has built the largest engine manufacturing plant of Europe (third largest in the world) in Győr becoming Hungary's largest exporter with total investments reaching over € 3,300 million until 2007.[39] Audi's workforce assembles the Audi TT, the Audi TT Roadster and the A3 Cabriolet in Hungary.[39] The plant delivers engines to carmakers Volkswagen, Skoda, Seat and also to Lamborghini.[39]

Daimler-Benz invests € 800 million ($1.2 billion) and creates up to 2,500 jobs at a new assembly plant in Kecskemét, Hungary[40] with capacity for producing 100,000 Mercedes-Benz compact cars a year.[41]

Opel produced 80,000 Astra and 4,000 Vectra cars from March 1992 until 1998 in Szentgotthárd, Hungary.[42] Today, the plant produces about half million engines and cylinder heads a year.[42]


The tertiary sector accounted for 64% of GDP in 2007 and its role in the Hungarian economy is steadily growing due to constant investments into transport and other services in the last 15 years. Located in the heart of Central-Europe, Hungary’s geostrategic location plays a significant role in the rise of the service sector as the country’s central position makes it suitable and rewarding to invest.

The total value of imports was 68,62 millard euros, the value of exports was 68,18 milliard euros in 2007. The external trade deficit decreased by 12,5% since the previous year, easing down from 2,4 billion to 308 million euros in 2007. In the same year, 79% of Hungary’s export and 70% of the imports were transacted inside the EU.[43]


Tourism employs nearly 150 thousand people and the total income from tourism was 4 billion euros in 2008.[44] One of Hungary’s top tourist destinations is Lake Balaton, the largest freshwater lake in Central Europe, with a number of 1,2 million visitors in 2008. The most visited region is Budapest, the Hungarian capital attracted 3,61 million visitors in 2008.

Hungary was the world’s 26th most visited country in 2007.[45]The Hungarian spa culture is world-famous, with thermal baths of all sorts and over 50 spa hotels located in many towns, each of which offer the opportunity of a pleasant, relaxing holiday and a wide range of quality medical and beauty treatments.


Forint coins and banknotes

The currency of Hungary is the Hungarian forint (HUF, Ft) since 1 August, 1946. A forint consists of 100 fillérs, however, these have not been in circulation since 1999, they are only used in accounting.

There are six coins (5, 10, 20, 50, 100, 200)[46] and six banknotes (500, 1000, 2000, 5000, 10000 and 20000).[47] The 1 and 2 forint coins were withdrawn in 2008, yet prices remained the same as stores follow the official rounding scheme [48] for the final price. The 200 forint note was withdrawn on 16 November, 2009.[49]

As a member of the European Union, the long term aim of the Hungarian government is to replace the forint with the euro.[50] See also: Fiscal policy.

You can check current exchange rates with graphs of past rates at Google Finance.

Socio-economic characteristics

Human capital

Language learning among students in upper secondary education in Hungary in 2007

Education in Hungary is free and compulsory from the age of 5 to 18.[51] The state provides free pre-primary schooling for all children, 8 years of general education and 4 years of upper secondary level general or vocational education.[51] Higher education system follows the three-cycle structure and the credit system of the bologna process.[51] Governments aim to reach European standards and encourage international mobility by putting emphasis on digital literacy, and enhancing foreign language studies: all secondary level schools teach foreign languages and at least one language certificate is needed for the acquisition of a diploma.[51] Over the past decade, this resulted in a drastic increase in the number of people speaking at least one foreign language.[52]

Hungary's most prestigious universities are:

Financial sources for education are mainly provided by the state (making up 5.1-5.3% of the annual GDP).[51] In order to improve the quality of higher education, the government encourages contributions by students and companies. Another important contributor is the EU.[51]

Mathematics score in PISA 2006 of Hungary among other countries

The system has weaknesses, the most important being segregation and unequal access to quality education.[51] The 2006 PISA report concluded that while students from comprehensive schools did better than the OECD average, pupils from vocational secondary schools did much worse.[54] Another problem is of the higher education’s: response to regional and labour market needs is insufficient.[51] Government plans include improving the career guidance system and establishing a national digital network that will enable the tracking of jobs and facilitate the integration into the labour market.[51]

Social stratification

As most post-communist countries, Hungary’s economy is affected by its social stratification in terms of income and wealth, age, gender and racial inequalities.

Hungary’s Gini coefficient of 0.269[55] ranks 11th in the world.[56] The graph on the right shows that Hungary is close in equality to the world-leader Denmark. The highest 10% of the population gets 22.2% of the incomes[55]. According to the business magazine Napi Gazdaság, the owner of the biggest fortune, 300 billion HUF, is Sándor Demján.[57] On the other hand, the lowest 10% gets 4% of the incomes. Considering the standard EU indicators (Percentage of the population living under 60% of the per capita median income), 13% of the Hungarian population is stricken by poverty.[58] According to the Human Development Report, the country’s HPI-1 value is 2.2% (3rd among 135 countries)[59], and its HDI value is 0.879 (43rd out of 182)[59].

Population pyramid of Hungary

The fertility rate in Hungary, just like in many European countries, is very low: 1.34 children/women (205th in the world)[60] Life expectancy at birth is 73.3 years.[60], while the expected number of healthy years is 57.6 for females and 53.5 for males. The average life expectancy overall is 73.1 years.[61]

Hungary’s GDI (gender-related development index) value of 0.879[59] is 100% of its HDI value (3rd best in the world)[59]. 55.5% of the female population (between 15 and 64) participate in the labour force, and the ratio of girls to boys in primary and secondary education is 99%[60].

Racial inequality, which strikes primarily Roma in Hungary, is a serious problem. Although the definition of the Roma identity is controversial[62], qualitative studies prove that the Roma employment rate decreased significantly following the fall of Communism[63]: due to the tremendous layoffs of unskilled workers[64] during the transition years, more than one-third of Roma were excluded from the labour market.[65] Therefore, this ethnic conflict is inherently interconnected with the income inequalities in the country[66] – at least two-thirds of the poorest 300,000 people in Hungary are Romas[66]. Furthermore, ethnic discrimination is outstandingly high, 32% of Romas experience discrimination when looking for work.[67] Consequently, new Roma entrants to the labour market are rarely able to find employment[65], which creates a motivation deficit and further reinforces segregation and unemployment.[68]

Institutional quality

Twenty years after the change of the regime, corruption remains to be a severe issue in Hungary.[69] According to Transparency International Hungary, almost one-third of top managers claim they regularly bribe politicians.[69] Most people (42%) in Hungary think that the most sector that is most affected by bribery are the political parties.[70] Bribery is common in the healthcare system in the form of gratitude payment–92% of all people think that some payment should be made to the head surgeon conducting a heart operation or an obestetrician for a child birth.[71]

Another problem is the administrative burden: in terms of the ease of doing business, Hungary ranks 47th out of 183 countries in the world.[72] The five days’ time[60] required to start a new business ranks 29th, and the country is 122nd concerning the ease of paying taxes.[73]

In accordance with the theory of the separation of powers, the judicial system is independent from the legislative and the executive branches.[74] Consequently, courts and prosecutions are not influenced by the government. However, the legal system is slow and overburdened, which makes proceedings and rulings lengthy and inefficient.[75] Such a justice system is hardly capable of prosecuting corruption and protecting the country’s financial interests.[69]

State participation

Monetary policy

Chart showing the base rate of Hungarian National Bank.
Base rate of Hungarian National Bank (MNB).

The Hungarian organization responsible for controlling the country's monetary policy is the Hungarian National Bank (Hungarian: Magyar Nemzeti Bank, MNB) which is the central bank in Hungary.[76] According to the Hungarian Law of National Bank (which became operative in 2001. – LVIII. Law about The Hungarian National Bank[77]), the primary objective of MNB is to achieve and maintain price stability. This aim is in line with the European and international practice.

Price stability means achieving and maintaining a basically low, but positive inflation rate. This level is around 2-2.5% according to international observations, while the European Central Bank "aims at inflation rates of below, but close to 2% over the medium term".[78] Since Hungary is in the process of catching up (Balassa-Samuelson effect), the long-term objective is a slightly higher figure, around 2.3-3.2%.[79] Therefore the medium term inflation target of the Hungarian National Bank is 3%.[80]

Concerning the exchange rate system, the floating exchange rate system is in use since 26 February, 2008, as a result of which HUF is fluctuating in accordance with the effects of the market in the face of the reference currency, the euro.

Forint exchange rates from June 2008 to September 2009

The chart on the right shows forint exchange rates for the British pound (GBP), euro (EUR), Swiss franc (CHF), and the U.S. dollar (USD) from June 2008 to September 2009. It indicates that a relatively strong forint weakened since the beginning of the financial crisis, and that its value has recently taken an upward turn.

Compared to the euro the forint was at peak on June 18, 2008 when 1000 Ft was 4.36€ and 1€ was 229.11Ft. The forint was worth the least on March 6, 2009; this day 1000 Ft was 3.16€ and 1€ was 316Ft).

Compared to USD, most expensive/cheapest dates are June 22, 2008 and March 6, 2009 with 1000HUF/USD rates 6.94 and 4.01 respectively.

Fiscal policy

In Hungary, state revenue makes up 44% and expenditure makes up 45% of the GDP which is relatively high compared to other EU members.[81] This can be traced back to historical reasons such as socialist economic tradition as well as cultural characteristics that endorse paternalist beaviour on the state’s part, meaning that people have a habitual reflex that make them call for state subsidies.[82] Some economists[83] dispute this point, claiming that expenditure ran up to today’s critical amount from 2001, during two left-wing government cycles.[81]

Along with joining the EU the country undertook the task of joining the Eurozone as well. Therefore, the Maastricht criteria which forms the conditionalies of joining the Eurozone acts as an authoritative guideline to Hungarian fiscal politics. Although there has been remarkable progress, recent years’ statistics still point at significant discrepancies between the criteria and fiscal indices. The target date for adapting the Euro has not been fixed, either.

General government deficit has shown a drastic decline to -3.4% (2008) from -9.2% (2006).[84] According to an MNB forecast however, until 2011, the deficit will by a small margin fall short of the 3.0% criterion.[85]

Another criterion that is found lacking is the ratio of gross government debt to GDP which, since 2005, exceeds the allowed 60%.[86] According to an ESA95 figure, in 2008 the ratio increased from 65.67% to 72.61%, which primarily results from the requisition of an IMF-arranged financial assistance package.[87]

Hungary’s balance of payments on its current account has been negative since 1995, around 6-8% in the 2000s[88] reaching a negative peak 8.5% in 2008.[88] Still, current account deficit will expectedly decrease in the following period, as imports will diminish compared to exports as an effect of the financial crisis.[89]

Tax system

In Hungary, the 1988 reform of taxes introduced a comprehensive tax system which mainly consists of central and local taxes, including a personal income tax, a corporate income tax and a value added tax.[90] Among the total tax income the ratio of local taxes is solely 5% while the EU average is 30%.[91]

The central tax system consists of three components:

Personal income tax

The taxation of an individual is progressive, determining the tax rate based on the individual’s income: with earning up to 1,900,000 forints a year, the tax is 18%, the tax on incomes above this limit is 36% since 1 of July, 2009.[92]

According to the income-tax returns of 2008, 14,6% of taxpayers was charged for 64,5% of the total tax burdens.[93]

Corporate income tax

Corporate tax is fixed at 16% of the positive rateable value, with an additional tax called solidarity tax of 4%, the measure of which is calculated based on the result before tax of the company (the solidarity tax has been in use since September, 2006). The actual rateable value might be different is the two cases.

Value added tax (VAT)

The rate of value added tax in Hungary is 25% since 1 of July, 2009. At the same time, reduced rates of 18% came into practice, concerning basic food (milk, flavoured milk, dairy products, corn, flour) and distance heating. [94]

External relations

The EU

Hungary joined the European Union on 05/01/2004 after a successful referendum[95] among the EU-10. The EU's free trade system helps Hungary, as it is a reatively small country and thus needs export and import.

After the accession to the EU, Hungarian workers could immediately go to work to Ireland, Sweden and the United Kingdom. Other countries imposed restrictions[96]

Rest of the world

Foreign trade

In 2007, 25% of all exports of Hungary were of high technology, which is the 5th largest ratio in the European Union after Malta, Cyprus, Ireland, and the Netherlands. The EU10 average was 17.1% and the Eurozone average was 16% in 2007[60].

See also


  1. ^ Euro area unemployment rate at 9.9% - Eurostat. 1. March 2010
  2. ^ "About Hungary". OECD.,3347,en_33873108_33873438_1_1_1_1_1,00.html. Retrieved 2010-01-18. 
  3. ^ "Hungary and the WTO". 
  4. ^ "Member States of the EU: Hungary". EU. Retrieved 2010-01-18. 
  5. ^ a b "U.S. State Department's Background Note on Hungary". 
  6. ^ a b c Iván Major (2003). "Privatization in Hungary and its Aftermath". Edward Elgar Publishing. Retrieved 2010-01-05. 
  7. ^ a b B. Vizvári, Zs. Bacsi (2003-06-02). "Strucutural Problems in Hungarian Agriculture After the Political Turnover" (pdf). Journal of Central European Agriculture. Retrieved 2010-01-05. 
  8. ^ Árpád Kovács. "Privatisation in Hungary (1990-2000)" (pdf). Retrieved 2010-01-05. 
  9. ^ Anna Canning and Paul Hare. "Political Economy of Privatization in Hungary: A Progress Report" (pdf). Edinburgh: Department of Economics, Heriot-Watt University. Retrieved 2010-01-05. 
  10. ^ a b c "Hungarian Finance Minister Lajos Bokros Explains His Package". The World Bank. Retrieved 2009-11-12. 
  11. ^ "External trade by groups of countries in HUF (1991–2003)". KSH. Retrieved 2009-11-12. 
  12. ^ "Viták kereszttüzében: a Bokros-csomag (The Bokros Package in the Crossfire)" (in hungarian). Világgazdaság Online. 2008-12-15. Retrieved 2009-11-12. 
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