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  • Publication Date: 05-2007
  • Content Type: Policy Brief
  • Institution: The Organisation for Economic Co-operation and Development
  • Abstract: Budget consolidation is dominating the political agenda. The Hungarian government has embarked on an ambitious four-year consolidation programme following another election-year peak in the deficit in 2006 at 9.2% of GDP. The immediate revenue increases and spending cuts are temporarily damping growth. However, if all goes according to plan, the programme will bring dividends to the economy in the longer term. This payoff is crucially dependent on: Discipline in budgetary processes. Work needs to continue on strengthening budgetary mechanisms. A system of binding medium-term spending limits should be considered. Budgetary reform also needs to extend to the sub-national governments. Success in maintaining spending freezes. The re-scheduling that brought forward part of the 13th month payment to public-sector workers this year does not affect achievement of the 2007 fiscal target in accrual terms. Nevertheless, looking forward, strong resistance to spending pressures arising from revenue windfalls is of key importance. Implementation of the structural reform programme. The healthcare reforms that are expected to deliver a large share of fiscal savings are reasonably well advanced and a welcome cut in gas-price subsidies is already reducing government spending. The reforms in education are positive but the changes to the tuition–fee system in particular should go further. It is more uncertain, however, whether all the planned cuts in government administration will be realised. Successful reform of public spending requires the participation of the counties and municipal governments. There are potential savings in administrative overheads here too and sub-national governments are responsible for providing many government services. In-depth review of these issues in this Survey reveals a need to: Capture economies of scale. Political constraints preclude widespread mergers among the large number of small municipalities. However, the joint provision of services is widespread and should be encouraged further. Efforts to rationalise through replacement of county-level governments with regional assemblies should continue. Reform financing systems. The financing of sub-national government needs simplification and greater transparency and oversight in accounts. Also, the benchmarking of services via output and performance indicators needs to become more widespread. Reform of local taxation should include widening of property tax and removal of the local business tax. Hungary's low employment rate remains a key structural handicap to economic performance. There has been welcome reform of unemployment benefits and early-retirement pensions. Planned reforms to disability pensions look promising and a concrete proposal for old-age pension reform is in the pipeline. This Survey looks in depth at the issue of prolonged parental leave and other aspects of family policy: Current efforts to boost childcare services are welcome. Future reform needs to consider further strengthening of central-government provision requirements on municipalities regarding these services, matched by appropriate funding. A system of childcare vouchers for parents would be one way of increasing efficiency in the provision of services. Reform to the very long parental leaves should be considered, along with changes to the attendant system of additional cash benefits. Savings could be used to help fund increased childcare services.
  • Topic: Development, Economics, Government
  • Political Geography: Europe
  • Publication Date: 05-2007
  • Content Type: Policy Brief
  • Institution: The Organisation for Economic Co-operation and Development
  • Abstract: Nations and regions are struggling to remain competitive and adapt in the context of globalisation. The regional specialisations built up over decades are transforming rapidly. Many regions that were historically production centres are losing out to lower-cost locations and are reorienting their activities to higher value-added non-manufacturing industries or R manufacturing niches. Yet, given that even some of these upstream activities have begun to be off-shored to lower-cost OECD and non-OECD countries, the question for policy is how durable are the competitive strengths on which regional economies are based.
  • Topic: Development, Economics, International Trade and Finance, Nationalism
  • Publication Date: 05-2007
  • Content Type: Policy Brief
  • Institution: The Organisation for Economic Co-operation and Development
  • Abstract: Despite a sharp housing market correction, overall growth has been holding up fairly well. Strong foreign demand and a decline in import growth have slowed the rise in the external deficit. With activity near capacity limits, some inflationary pressures have emerged. Reining them in without stifling growth is the main challenge for monetary policy. Looking further ahead, the key challenges are to sustain healthy growth and ensure fiscal sustainability in the face of population ageing. Against this backdrop, the Survey focuses on the following issues: Enhancing the economy's growth potential. Trend growth is slowing because labour productivity gains, though remaining high, no longer suffice to compensate for the deceleration in potential employment due mainly to demographic factors. Prospects for productivity growth appear favourable, but further efficiency gains could be achieved by tackling unfinished business in the area of structural reform. Labour supply could be boosted by increasing work incentives for the disabled, raising the earned income tax credit and delaying retirement eligibility.
  • Topic: Development, Economics, Markets
  • Political Geography: United States
  • Publication Date: 05-2007
  • Content Type: Policy Brief
  • Institution: The Organisation for Economic Co-operation and Development
  • Abstract: Growth performance over the last decade has been among the best in the OECD, though a precise calibration is not yet possible following the recent revisions to GDP data. High growth has been driven by a range of factors, some of which are transitory. It is particularly encouraging that growth has been sustained over the last two years, despite substantial fiscal consolidation, mainly being driven by investment and exports. However, significant further reforms are needed to ensure that good performance is sustained in the years to come. It is imperative to use this period of strong performance to tackle remaining weaknesses in product and labour markets and move fiscal policy further towards a sustainable position by vigorous continued consolidation and pension reform. The key challenge, in terms of political economy, is to manage the required reforms in a context where society may be unduly complacent because the “good times” appear to be continuing.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: Europe, Greece
  • Publication Date: 06-2007
  • Content Type: Policy Brief
  • Institution: The Organisation for Economic Co-operation and Development
  • Abstract: A welcome economic recovery is under way in Italy. In part, this reflects the cyclical upswing in the rest of Europe, but there are also early signs of a more fundamental improvement, notably in terms of export and labour market performance. Even so, medium-term prospects remain challenging: Total factor productivity shows little signs of resurgence, high public indebtedness threatens fiscal sustainability and population ageing looms large. Without further reforms to restore economic dynamism, living standards will be dragged down relative to other countries. This Survey discusses policies undertaken by the government to address these challenges, notably to boost competition on product markets, achieve fiscal sustainability and make fiscal federalism work – all in support of growth and adjustment.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: Europe, Italy
  • Publication Date: 06-2007
  • Content Type: Policy Brief
  • Institution: The Organisation for Economic Co-operation and Development
  • Abstract: Governments have long been engaged in providing goods or services to their citizens that could, in some form, be provided by the private sector. The trend over the past few decades, however, has been to transfer these functions, and the state-owned assets used to provide them, to private hands. The most common method, and the one usually preferred, is privatisation, or outright sale or transfer of ownership of the relevant assets to one or more private parties. A second, however, is concessions.
  • Topic: Development, Economics, Government, Markets
  • Publication Date: 06-2007
  • Content Type: Policy Brief
  • Institution: The Organisation for Economic Co-operation and Development
  • Abstract: Sweden's 1993 Competition Act (CA) remains the foundation of a broad policy approach that includes prohibitions against restrictive agreements and abuse of dominance, control of concentrations, advocacy and support for academic research. Enforcement of this legislation by the Swedish Competition Authority (SCA) marked a shift towards a judicial, rules-based approach.
  • Topic: Development, Economics, Government
  • Political Geography: Europe, Sweden
  • Publication Date: 04-2007
  • Content Type: Policy Brief
  • Institution: The Organisation for Economic Co-operation and Development
  • Abstract: Following major economic reforms, the Slovak economy has grown strongly in recent years, driven by rapid productivity growth, but still has far to go to catch up to the per capita income levels in the advanced European countries. The incoming government has made achieving a more equal distribution of income a priority insofar as this can be done without damaging long-term growth prospects. There is considerable scope both to strengthen growth prospects and to reduce income inequality by raising employment rates, improving education outcomes (including by reducing the impact of socio-economic background), and by removing barriers to product-market competition. The new government has also reiterated its commitment to Slovakia's entry into the euro area in January 2009 and has taken steps to make it probable that Slovakia will satisfy the Maastricht criteria for entry on a sustainable basis. Policies may need to be adapted to support macroeconomic stability in the currency union.
  • Topic: Development, Economics, Poverty
  • Political Geography: Europe, Eastern Europe, Slovakia
  • Publication Date: 04-2007
  • Content Type: Policy Brief
  • Institution: The Organisation for Economic Co-operation and Development
  • Abstract: New Zealand has undertaken wide-ranging reforms over the past 20 years and now has one of the most flexible and resilient economies in the OECD. However, a large external deficit, very low household saving and still-strong inflation pressures indicate an unbalanced growth pattern. There are some signs that these imbalances are starting to unwind, but the short-term outlook remains uncertain. On current settings, it will take time for inflation pressures to dissipate and, notwithstanding a large fiscal surplus, strong growth in government spending is complicating the stabilisation task of the Reserve Bank. Moreover, additional fiscal stimulus beyond present plans – whether from spending increases or tax reductions – would delay internal and external rebalancing and exacerbate the adjustment required to ensure fiscal sustainability in the longer term.
  • Topic: Development, Economics, Markets
  • Political Geography: Australia/Pacific, New Zealand
  • Publication Date: 05-2007
  • Content Type: Policy Brief
  • Institution: The Organisation for Economic Co-operation and Development
  • Abstract: The Southeast Asian region has shown remarkable economic dynamism. Economic growth has been robust, and trade and investment flows have been soaring as a result of increasing international division of labour.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: Southeast Asia