Commission Report 2002 (Hungary)

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 29: Financial and budgetary provisions

Progress since the last Regular Report

Hungary has made some progress in this area since the last Regular Report.

As regards the national budget and EC co-financed measures, amendments to the Laws on Budget and on Public Finances entered into force in October 2001, strengthening the provisions on budgetary planning discipline and sanctions for inappropriate spending. They also further increase the responsibilities for the management of public funds and their control.

As regards the own resources system, new legislation came into force in July 2002 on the transitional sugar regime based on sugar and isoglucose quotas. The Agricultural Intervention Centre is responsible for managing and controlling the quota system, including regular on-the-spot checks at the sugar producing companies, which have to provide monthly statistics on their production, sales, and stock levels.

For the purpose of calculating the GNP resource, further progress was made with the implementation of the ESA 95 methodology. As regards administrative capacity, Hungary has continued modernising its tax administration and improving its infrastructure and information technology. For the purpose of own resources, appropriate steps have been taken to ensure adequate co-ordination between the various authorities involved in the application of the own resources system.

Overall assessment

The legal framework for budgetary management and for the transparency and efficiency of financial flows to and from the EC budget is largely in place. Also the technical and administrative capacity with regard to the operational management of own resources is in place, except for sugar levies. For the latter, national procedures and competencies on how sugar levies are to be forwarded to the Commission`s account are still to be defined.

Overall preparations for the application of the acquis on own resources are progressing well, although there is room for further improvement.

As regards traditional own resources, the necessary institutions for establishing, accounting for and recovering customs duties and sugar levies are in place. Hungary still needs to further develop certain reporting and accounting requirements (the ``A` and ``B` accounts) and designate the competent authorities for producing the 'A' and 'B' account statements.

As regards VAT, Hungary has achieved a good degree of alignment, although a number of issues (reduced rates, the refund system to foreign taxable persons and the abolition of the zero-rate) still remain to be tackled. The provisions on intra-Community supplies and acquisitions are to be inserted in the national VAT Code. Hungary will need to continue to make substantial efforts to be able to calculate the weighted average rate (WAR) in accordance with ESA 95 and to determine the impact on the VAT base of the requested special arrangements in relation to the acquis (the various corrections to receipts and financial compensations in base). Hungary should continue to participate in the VAT simulation exercise, which is the key tool for effectively testing Hungary`s capability in the field of the VAT resource.

As regards the GNP resource, Hungary`s statistical system is broadly in line. Hungary is already able to calculate GNP according to ESA 95, but further adjustments will be necessary, in particular as regards the exhaustiveness of the non-financial national accounts.

As regards the administrative capacity necessary to co-ordinate financial relations with the EC, a special Unit for EU Affairs within the Fiscal and Financial Policy Division of the Ministry of Finance (staff: 5) co-ordinates the appropriate implementation of EC legislation relating to own resources. This unit has prepared a manual on own resources based on the checklist of administrative conditions in the area of the European Communities` own resources. After accession, the Unit`s role will consist in co-ordinating the calculation, control and payment of own resources, as well as co-ordinating contacts with and reporting to the EC in this area. Administrative preparations for the State Budget Office, which will be responsible for the own resources accounts, have started, with the structural and operating rules still to be fixed. The account in the name of the Commission will be established in the Hungarian State Treasury. The transfers will be carried out using the SWIFT system. The procedural rules on the crediting of traditional own resources (TOR) have still to be prepared.

The other institutions involved in the own resources system include the Hungarian Tax Authority (for collection of VAT), the Financial and Customs Guards (for collection of customs duties), and the Central Statistical Office (for calculating the GDP/GNI and the country`s weighted average rate).

Conclusion

In its 1997 Opinion, the Commission concluded that Hungary would have to overhaul its current customs system in order to ensure that own resources were established, monitored and made available in line with Community regulations. In addition, for the purposes of accurately calculating the GNP resource, considerable improvement would have to be made to the national accounts to ensure that they were reliable, homogenous and complete. Improving the statistics would also be essential for drawing up the VAT own resources base, which would mean bringing Hungary`s VAT system fully into line with the Community directives.

Since the Opinion, Hungary has made considerable progress in this area, in particular as regards the national budget and EC co-financed measures. It has also created the main necessary administrative structures. The legal framework for budgetary management and for the transparency and efficiency of financial flows to and from the EC budget is largely in place.

Negotiations on this chapter continue. Hungary is generally meeting the commitments it has made in the accession negotiations in this area.

In order to complete preparations for membership, Hungary`s efforts now need to focus in particular on modifying its accounting system in line with EC requirements, and putting in place the national procedures and competencies for the sugar levies. Further efforts are necessary in the field of the VAT base, GNP, particularly exhaustiveness of national accounts and further implementation of the ESA 95 methodology and traditional own resources, notably as regards the tariff structure.

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