Hungary’s regulatory climate makes it an increasingly challenging place to conduct business.
- Since 2016, multinationals have identified shortages of qualified labor mainly in rural areas, both white- and blue-collar, as the largest obstacle to investment in Hungary.
- In recent years, the government introduced several new taxes which mostly target the banking, energy, retail, pharma, and telecommunications sectors. In certain industries, such as media and retail, these unpredictable, sector-specific taxes and regulatory policies have favored national and government-linked companies. The Government in May 2022 enacted new measures to tax industries that allegedly were gaining extraordinary profits either from Russia’s war in Ukraine or from the COVID-19 pandemic. Hungary has been struggling with a serious budget deficit. Experts estimate the potential gap to be 4.3% of GDP in 2023 from an expected 6.1% of GDP in 2022. The government plans to institute some additional cost-cutting in the amount of HUF 1.2 trillion, a significant amount considering the extent to which the Hungarian public services have been underfinanced.
- Hungary’s value-added tax (VAT) for most products and services is 27%, the highest rate in the EU.
- Persistent corruption and cronyism continue to influence the public sector. The Corruption Perceptions Index (CPI) by Transparency International slightly decreased from 43 to 42 points in 2022. By this measure, Hungary is the most corrupt country in the European Union. In 2016, the government withdrew from the Open Government Partnership (OGP), a transparency-focused international organization, after refusing to address the organization’s concerns about transparency and good governance. Despite strong pressure from the opposition and public, the Government has not joined the European Public Prosecutors Office. Corruption Perceptions Index.
- EU funding is a large driver of Hungarian GDP growth. Based on the recent outcome of the 2021-2027 Multi-Financial Framework (MFF) negotiations, Hungary will be able to apply for more than USD 61.1 billion (EUR 52.8 billion) from the central budget over the seven-year term, which would mean a 35% increase compared to the previous term. Fitch Ratings
- Roughly EUR 21 billion of these funds remain blocked due to corruption concerns and other issues.
- After the April 2022 national election, Prime Minister Viktor Orban’s ruling Fidesz party retained its leadership for the fourth time and retaining its two-thirds supermajority in parliament. The Government remains focused on being an export-oriented economy facilitating Foreign Direct Investment (FDI). Hungary under PM Orban has long been at loggerheads with the European Commission in Brussels over issues such as immigration, judicial reforms, and media freedom. FDI in Hungary reached a record EUR 6 billion in 2022.