Health Systems in Transition - Hungary - World Health Organization ...

Health systems in transition Hungary 77
but no cash benefits (1997/8). In order to qualify for more extensive benefits,
they can choose to pay the full contribution rate (employer’s and employee’s
combined) based on a special income statement to the Tax Office.
Provision for non-contributing groups has been shared between the social
insurance system and the government since 1992: the central government pays
the contributions for most of the non-contributing groups but not pensioners
(1992/1). In reality, while payments by the PIF reached 20.2% of the expenditure
on benefits-in-kind of the HIF, the contribution of the central budget for the
non-contributing groups only amounted to 1%, which made practically no
difference in the budget of the HIF (NHIFA, 2008).
Unpaid HIF and old age insurance contributions combined peaked at 4.3%
of GDP in 1994, but still amounted to 2.5% of the GDP in 2000. In fact, some
authors estimate a shadow economy of 25.1% of GDP in Hungary, which is
at the lower end of the range for transition economies of central and Eastern
Europe, but higher than in Slovakia and the Czech Republic, as well as than the
average for OECD countries (Schneider & Klinglmair, 2004).
High HIF contribution rates have certainly provided an incentive for
avoidance and evasion, including payment arrears, non-payment and underreporting
of income. Successive governments have attempted to address
these problems in several ways. The interventions had three main directions:
decreasing the HIF contribution rate, widening the contribution base and
stronger enforcement of the payment of contributions.
In 1996, the HIF contribution of the employers was decreased by three
percentage points, which was the starting point of an enduring trend in the
radical decrease of the employer contribution rate coupled with the more rapidly
increasing deficit of the HIF, throughout the following decade. This policy
aimed at improving international competitiveness, boosting economic growth
and stimulating the employment level. The potential consequences on HIF
revenue were not addressed in a systematic manner.
In 1998, contribution rates were decreased further and contribution
collection was transferred from the NHIFA to the more authoritative Tax Office,
with the aim of making collection less susceptible to tax avoidance, whereas the
governance structure of the HIF and NHIFA were reorganized. The employer
share of contributions was decreased by another four percentage points to 11%
in 1999 (and remained at this level until 2006), while the employee contribution
had been lowered by 1% in 1998 (Table 3.5). The government abolished the
ceiling for the employee health insurance contribution (2000/8) and added a