Hungary: Hungary profile

Country overviewCurrent business situation

Political climate

Hungary is a multiparty democracy. The unicameral parliament has 386 members: 176 from single-member constituencies, 140 from regional lists and 70 from a national list. The president, who is elected by parliament, has little power.

In April 2006 the government led by the Hungarian Socialist Party (MSZP) became the first to win re-election, and the MSZP renewed its coalition with its junior, liberal partner, the SZDSZ-Alliance of Free Democrats. This coalition came to an end on 1 May 2008 after the health reform (which was strongly supported by the liberal party) was completely refused in a referendum and the liberal minister for health was dismissed. As a response to that the free democrats left the coalition.

The Prime Minister, head of government, has the most powerful position. The political climate is stable even though the rotation of power between the two major political wings – conservatives and the parties on the left ceased after the elections in 2006. The country is very much divided along political views so this contributed to riots in autumn 2006. As time has passed by, however, it has become obvious for the opposite too, that it is unlikely for them to take over power before the next elections in 2010

Economic climate

Hungary was one of many countries granted European Union (EU) accession from the 1st of May 2004. Among the countries who were granted entry into the EU Hungary is one of the front runners whose openness to foreign investment and highly skilled workforce have made Hungary’s economy one of the strongest in Central Eastern Europe.

Foreign investment in and ownership of Hungarian firms has been widespread, with cumulative foreign direct investment of €48.7 billion by 2005. Major credit rating agencies rank Hungary as ‘investment grade’. Hungary plays above its weight in Central and Eastern Europe, attracting over one-third of all foreign direct investment to the region (including the former Soviet Union).

Due to lack of real reforms in the basic re-distribution systems in Hungary the present government has faced worsening economic indicators. This made them introduce an austerity package mostly consist of revenue generating measures such as the raising of the middle bracket of value added taxes from 15 to 20 per cent, an extra four per cent 'solidarity tax' for profitable companies and wealthy individuals and a new 20 per cent tax on interest and capital gains.

The latest reform trials have been vetoed by referendums about the introduction of higher education tuition fees and several ways of co-payment in the health care system.

The taxation as such must be simplified and lowered – the government and the representatives of the business life agree on that. Hungary is the second after Belgium among the OECD countries in tax burden in the total labour cost – taxes and contributions take 54.4 per cent of the total labour cost.

Trade relations and statistics

Hungary is one of the most advanced Central European countries with traditionally close geographic, historical, cultural and economic ties to Austria and Germany and Russia. It is a foundation member of the Central European Free Trade Agreement (CEFTA) that includes most of the countries in the region (Poland, Czech Republic, Slovakia, Slovenia, Romania and Bulgaria).

Hungary joined the European Union (EU) and became part of a 450 million market as of 1 May 2004. The EU enlargement provides excellent opportunities to Australian companies

Hungary is a member of the Visegrad Four, with Poland, Slovakia and the Czech Republic.

This is an unofficial grouping of the four Central European post-Communist countries, promoting close cooperation between the four countries newly joining the European integration.

Hungary is a member of:

• The North Atlantic Treaty Organization (NATO) (1999)
• Organization for Economic Cooperation and Development (OECD) (1996)
• World Trade Organization (one of the founding members)
• International Monetary Fund (1982)
• European Bank for Reconstruction and Development (EBRD)

Hungary’s position in Europe as a landlocked country and its relative lack of natural resources have necessitated a traditional reliance on foreign trade.

Hungary, having exposed to foreign investments in automotive and electronics.  Future opportunities to develop trade and investment have been identified in infrastructure, government-related services (particularly health and e-government), consumer goods, food and beverages, computer and telecommunications software and services, building and construction technologies and education services. Hungary's EU accession also offers opportunities for business in areas such as environmental technologies and solutions. (Source: Department of Foreign Affairs and Trade country brief)