Public finance reform in Hungary: light at the end of the tunnel?

The dominance of electoral considerations in determining budgetary outcomes has been evident in Hungary over the last 15 years, with government deficits reaching their highest levels in election years (1994, 1998, 2002 and 2006). This deterioration of public finances has largely been possible due to the weakness of fiscal governance. In the current decade, fiscal laxity was particularly strong until mid-
2006; the country was even said to be suffering from a form of “fiscal alcoholism”. At the same time, economic activity was hampered by serious budgetary imbalances through various channels, which also slowed down catching-up vis-à-vis the EU average. In this Country Focus it is argued that the recently unveiled comprehensive proposal to reform Hungarian public finances is an important step towards curing these institutional weaknesses, even though there is still room for improvement. It is crucial that the reform is based on a broad political consensus so as to ensure its credibility and durability.