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- GDP (PPP):
- $246.4 billion
- 3.6% growth
- 1.3% 5-year compound annual growth
- $24,942 per capita
- Inflation (CPI):
- FDI Inflow:
Hungary’s transition to a market economy has been facilitated by the modernization of trade and investment. The business environment remains relatively conducive to entrepreneurship and risk-taking. However, concerns about the rule of law have been increasing, and budget deficits have raised public debt and hurt fiscal soundness.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 66 (down 0.8 point)
- Economic Freedom Status: Moderately Free
- Global Ranking: 58th
- Regional Ranking: 26th in Europe
- Notable Successes: Open Markets, Business Freedom, and Monetary Freedom
- Concerns: Rule of Law and Management of Public Spending
- Overall Score Change Since 2012: –1.1
State involvement in the economy has deepened as the government has acquired assets in several key sectors, including energy and banking. Since introduction of the 2010 levy on financial institutions, new taxes have also been added on the financial sector and other sectors such as telecommunications and retail.
Hungary has been a member of NATO since 1999 and a member of the European Union since 2004. In the April 2014 parliamentary election, held in accordance with a new constitution that went into force in January 2012, the center-right Fidesz–Hungarian Civic Alliance won the majority of seats, and Prime Minister Viktor Orbán, who has been in office since May 2010, formed a new government. Despite broad electoral support, Orbán has achieved only limited economic success. Recent modest economic growth reflects better-than-projected industrial output. The supply of low-skilled labor greatly exceeds demand, generating high unemployment. Hard-currency indebtedness remains a key vulnerability; the central bank plans to continue monetary easing to counter a period of prolonged deflation.
Corruption remains a serious problem, with rampant collusion between the public sector and privileged private businesses. In 2014, it was estimated that firms routinely pay bribes of up to 20 percent of a project’s value. The ruling Fidesz-led coalition has appointed its allies to lead state anti-corruption agencies. Judicial independence is increasingly threatened. Courts are forbidden to refer to laws in effect before the 2012 Fidesz constitution.
The personal income tax rate is a flat 16 percent, and the top corporate tax rate is 19 percent. Other taxes include a value-added tax and a property tax. The overall tax burden equals 38.9 percent of total domestic income. Government spending accounts for 49.4 percent of total domestic output. Public debt remains at about 77 percent of GDP, and borrowing costs have risen.
The regulatory regime generally allows innovative business formation and operation. The overall labor code lacks flexibility, and restrictions on work hours remain rigid. The government passed along savings to consumers from lower global oil prices in 2015 by cutting domestic regulated energy prices and implemented a radical reform of its agricultural subsidy allocation system by cutting payments to large farms.
EU members have a 1 percent average tariff rate. Trade agreements are currently being negotiated with countries that include the United States and Japan. Most state-owned enterprises have been privatized. Foreign and domestic investors are treated equally under the law. The growing financial sector is open to competition, but banks have been negatively affected by special taxes and other regulatory changes since 2010.