Hungary : Modernising the national government system

This paper discusses key findings and policy proposals for modernising Hungary's subnational government system the perspective of fiscal decentralisation, local capacity building, and development of a competitive credit market. Hungary has been a pioneer in local government reform among transition economies;it has decentralised the state administration, re-established the full autonomy of local governments, and tightened budget constraints. The public and private sectors are already bound to each other in public utility supply, and NGOs are also undertaking a growing role in providing social services. Despite the recently reinforced intermediary levels of government the very fragmented municipal system constrains public service efficiency and apparently restraints capacity of subnational entities in absorbing EU funds. The first decade of transition has proven the merits of a profoundly decentralized municipal system, though a system geared toward a market economy and EU compliance. The efficiency and coverage of public services relies, inter alia, on vertical and horizontal recomposition of the system of public service delivery, in tandem with restructuring both the current and capital grant system. Increasing local own source revenues, first of all local taxes (e.g. introducing value based property tax) are key factors in meeting the demand for local services and in enhancing accountability and credit worthiness.