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7 Efficient state
The growth capacity of enterprises is significantly influenced by the environment in which they function. One of the most important elements of this environment is the state, which impacts competitiveness via several channels and thus also influences macroeconomic growth and convergence. Due to its size, the state uses significant resources. Empirical analyses confirm that there is strong positive correlation between efficient state administration and economic growth. By EU standards, the Hungarian state's spending on maintaining public administration is relatively high. The primary reason for this is the high level of public employment, while the wage per capita is unable to compete with the positions in the private sector. Under the present favourable labour market circumstances, it is easier to release public human resource capacities for the private sector, while the state may spend the budgetary saving thus realised, among others, for wage increases within the sector. E-governance is able to provide substantial support for the more economical functioning of state. Since productivity is higher in the private sector than in the public sector, the realignment of employment in this way alone supports growth in macroeconomic productivity. Decreasing bureaucratic burdens will tie up the resources of the private sector to a lesser degree, thereby improving the efficiency of enterprises.
On the regulatory side, the state may help curb the hidden economy, the excessive size of which generates competitive disadvantages for lawfully operating enterprises and also reduces budget revenues. Thus, government efficiency not only contributes to productivity growth, but also provides the countercyclical room for manoeuvre, which – based on the lessons learnt from the crisis – is necessary for the achievement of a balanced growth path. The reduction of tax evasion and the hidden economy supports competitiveness via several channels. Starting from 2010, in Hungary several economic policy measures (connection of online cash registers, introduction of the Electronic Public Road Trade Control System, launch of online invoicing) supported the reduction of the hidden economy, as a result of which the estimated rate of tax evasion declined to 22.2 percent, which, however, still exceeds the EU average (17.9 percent) by more than four percentage points and the Austrian level (7.8 percent) more than three times. With a view to further reducing the hidden economy, the continuation and expansion of the already commenced measures aimed at curbing the shadow economy would support the success of convergence.
One of the key roles of the state is to provide the private sector with the fundamental – or in other words, basic – infrastructures. These infrastructures have already been dealt with partially in the section on human capital (e.g. nursery capacity). The traditional infrastructures (road, railway, water transport, etc.) continue to be important for a country's competitiveness; additionally, in the 4th industrial revolution, telecommunications, and particularly the possibility of wireless data transmission, is also gaining importance. The development of infrastructure reduces transport costs, has investment generation capability and also contributes to convergence, via improved labour mobility. In Hungary, the density of the road and railway network is favourable in a European comparison, but in terms of quality these networks are obsolete. The implementation of fast, cheap transport and the strengthening of Hungary's international infrastructure interconnectedness may substantially increase the competitiveness of the Hungarian economy. The key resource of the 21st century may be the data, the fast transmission of which is a key measure of competitiveness. On the one hand, the extensive use of the broadband internet and the mobile 5G network fosters the digitalisation of the economy, which increases the efficiency and productivity of the service sector. On the other hand, in the households it facilitates the use of the new devices appearing in the 4th industrial revolution (e.g. household appliances communicating with each other), which may lead to an expansion of welfare. The spread of modern telecommunication solutions helps services gain importance in the Hungarian economy and contributes to economic growth. The functioning of the modern telecommunication infrastructure depends on a safe environment. Hungary's cybersecurity maturity lags behind that of Austria and the EU average.
By developing a proper energy mix and fostering energy efficiency, the state may reduce the country's energy dependency and contribute to maintaining the trade surplus. In Hungary, one unit of economic output consumes twice as much energy as in Austria; the reduction of this may be facilitated by accelerating the renovation of the Hungarian stock of dwellings and public buildings, the faster penetration of environmentally-friendly technologies in industrial production and rejuvenation of the vehicle fleet.
