The Financing Reform of Social Security
How to Kill Many Birds with One Stone?

László Mádi
PhD, Director of the Business Administration and Management Programme
Wekerle Business School

László Árva
PhD in Economics,
Professor at the Budapest Faculty of École Superieure des Sciences
Commerciales d’Angers between 2009 and 2013

Published in: Public Finance Quarterly 2016/3 (p. 382-400.)

SUMMARY: One of the most severe problems affecting the economy in Hungary according to domestic entrepreneurial organisations [National Association of Entrepreneurs and Employers (VOSZ), Hungarian Chamber of Commerce and Industry (MKI), Hungarian Association of Craftsmen’s Corporations (IPOSZ)] are the extremely high charges on labour. Is this assertion true and if it is, what sort of real opportunities are there to substantially reduce the charges? How did this high level of charges come about; why is it unsustainable for the future; what sort of international models and experiences of its reduction exist; and what sort of consequences such high levels of contributions have on our competitiveness, the pervasiveness of the grey economy, and the socioeconomic problems of pensioners? It is posited as the hypothesis of this paper that not only is it possible to reduce the existing contribution burdens in Hungary substantially, but it is also our duty to do so. By taking this step, we would also be able to significantly alleviate several of our economic and social problems. And although we would obviously have to replenish the funds necessary for the operation of the system, a combined system (partially financed from wage-related contributions and partially from the central budget) would not only solve the sustainability issue of social security, but by improving competitiveness it would also contribute to our country’s growth.

KEYWORDS: social security, fiscalisation, economic policy, charges on labour, reform

 G28; H26; I13; H24; H55

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