European Commission endorses Hungary's €5.8 billion recovery and resilience plan subject to meeting rule of law milestones - Questions and answers

How did the Commission assess Hungary's recovery and resilience plan?

The Commission is assessing the recovery and resilience plans based on eleven criteria set out in the Regulation itself. The 11 criteria require an assessment of whether:

• the measures have a lasting impact;
• the measures address the challenges identified in the country-specific recommendations or a significant subset of it;
• the milestones and targets which allow for monitoring the progress with the reforms and investments are clear and realistic;
• the plans meet the 37% climate expenditure target and the 20% digital expenditure target;
• the plans respect the do no significant harm principle;
• the plans provide an adequate control and audit mechanism and set out the plausibility of the costing information.

The Commission has summarised its assessment in the proposal for the Council Implementing Decision. The accompanying staff working document provides detailed documentation on the assessment.

Does Hungary's recovery and resilience plan effectively support the green transition?

The Hungarian plan's contribution to the green transition amounts to 48.1% of its total allocation of €5.8 billion. This exceeds by a significant margin the minimum of 37% required by the RRF Regulation.

A wide range of reforms and investments in the field of sustainable transport, energy, water management and the circular economy are expected to significantly contribute to the green transition and to the decarbonisation of Hungary's economy.

Hungary plans to invest €1.2 billion in the modernisation of important railway lines and their management system in different parts of the country, and in the suburban railway line in the region of Budapest. A further €159 million is to be spent on the purchase of 300 electric buses and to introduce a single information and ticketing system in public transport.

The plan includes a comprehensive package of measures on energy, with significant reforms and investments promoting renewable energy. For example, it includes reforms that will remove significant regulatory bottlenecks for the deployment of wind turbines, create “go-to areas” in the windiest regions and improve the permit granting procedures for power plants relying on renewable energy sources. To allow for the secure and flexible integration of energy produced from renewable sources into the grid, the plan includes €415 million to improve the electricity network and €304 million for the installation of storage facilities. Hungary also proposes to provide €265 million of financing to solar panel systems for 35,000 households, and to deploy solar power plants in the most disadvantaged settlements. Several of these measures also contribute to the REPowerEU objectives to rapidly reduce dependence on Russian fossil fuels and fast forward the green transition, as well as contribute to addressing the 2022 country-specific recommendation for Hungary on energy. Renovation of residential buildings is envisaged for an amount of €235 million. Renovation of public buildings, in particular in education and healthcare facilities, will contribute to increasing energy efficiency.

The plan also foresees financing of €145 million for measures on water management systems to restore water supply and improve water retention. It grants €109 million to measures promoting the transition to a circular economy by support for the use of secondary raw materials.

Does Hungary's recovery and resilience plan effectively contribute to the digital transition?

The Hungarian plan's contribution to the digital transition amounts to 29.8% of its total allocation of €5.8 billion. This exceeds by a significant margin the minimum of 20% required by the RRF Regulation.

Significant measures are included to improve the digital equipment and skills in secondary, vocational and higher education. €390 million is to be spent on improving digital skills and providing digital equipment for school education. As part of this measure, Hungary plans to provide 579,000 digital notebooks to pupils and teachers in school education as well as modern display tools to 3,100 schools. The RRF will also support with €177 million the purchase of digital equipment, the development of digital curricula and digital skills development in vocational education and training as well as in higher education.

€48 million is allocated to modernise, digitalise and improve public administration.

Digitalisation in the fields of transport, energy and healthcare is also expected to foster long-term economic development. In the field of transport, Hungary plans to invest €212 million in a central traffic management system for railway lines, a single national passenger information system, as well as a single ticketing system for bus and rail. The digital transformation of the energy sector is envisaged through the development of smart transmission and distribution grids, and the roll-out of smart meters. The investments in the healthcare sector also carry significant digital elements. €566 million is planned to be spent on the establishment of a central remote diagnostics centre, the introduction of an artificial intelligence-based system for the ambulances service, the development of mobile health apps and a remote patient monitoring system for those affected by limitations in their daily basic activities.

Does the recovery and resilience plan represent a balanced response to the economic and social situation of Hungary?

The Hungarian plan represents a comprehensive and balanced response to the economic and social situation of Hungary thereby contributing appropriately to all six pillars referred to in the RRF Regulation.

The plan includes a broad mix of reforms and investments, with a particular focus on the green transition, digital transformation, building economic, social and institutional resilience, and on policies for the future generations. The plan also includes measures to support sustainable and inclusive growth as well as social and territorial cohesion.

The plan includes measures to support quality education by improving the attractiveness of the teachers' profession and access to education. There is a strong focus on the digitalisation of education and the modernisation of vocational and training institutions.

The plan also supports the resilience, accessibility and effectiveness of the Hungarian healthcare system with measures covering upgrading infrastructure, optimising the responsibilities and the distribution of the health workforce throughout the country, and tackling informal out-of-pocket payments by patients to healthcare workers.

Poverty and social exclusion are addressed through funding for the 300 most disadvantaged settlements.

The plan supports smart, sustainable, and inclusive growth and a better investment climate. The creation of additional childcare places will facilitate the labour market participation of parents. Increased transparency and binding limits on single bids aim to improve competition in public procurement. Rule of law measures – explained in detail below – are also expected to contribute to a more investment-friendly climate, together with improvements to the quality and transparency of the decision-making process and a more systematic involvement of social partners and stakeholders. The quality of public finances is strengthened through measures to promote the sustainability and adequacy of pensions, simplify the tax system, and conduct regular spending reviews.

Do the reforms presented by Hungary effectively address a significant part of the country-specific recommendations issued to it in the context of the European Semester?

The Hungarian plan includes an extensive set of mutually reinforcing reforms and investments that contribute to effectively addressing a significant subset of the economic and social challenges outlined in the country-specific recommendations addressed to Hungary by the Council in the European Semester in 2019, 2020, and 2022. These concern notably the areas of the green and digital transition, education, social policy, the labour market, healthcare, anti-corruption, independence of judiciary, quality of decision making, public procurement, taxation and the pension system.

The Hungarian plan contains relevant measures to address the challenges related to ensuring a swift green and digital transition. In particular, a series of actions is expected to promote the clean and efficient production and use of energy, sustainable transport and the transition to a circular economy, including waste management. Moreover, various measures aim at improving digital equipment and skills, as well as the digital transition of public administration.

Challenges in education are expected to be tackled, among others, through the digitalisation of education, the modernisation of vocational and training institutions, and by improving the attractiveness of the teaching profession. Challenges related to poverty and social exclusion are to be addressed by strengthening basic services and providing a programme of investments for the 300 most disadvantaged settlements. The creation of additional childcare places is expected to facilitate the labour market participation of parents. The plan also includes measures to tackle key challenges of the healthcare system such as unequal access to health services, a high prevalence of informal payments by patients to healthcare workers, excessive reliance on hospital-level care and regional disparities stemming from staff shortages and an uneven distribution of active health workforce across the country.

A wide set of comprehensive institutional reforms is expected to improve the resilience of the economy by strengthening the fight against corruption, the independence of the judiciary, and increasing competition in public procurements. These reforms aim to overhaul existing practices and lead to structural improvements by establishing new independent bodies and powers, limiting the potential for arbitrary decisions, and increasing transparency.

Reforms and investments related to public administration and pensions, taxation, and the quality of public spending will contribute to addressing underlying challenges in these fields.

How does the plan address issues related to the rule of law?

Hungary's plan includes a comprehensive range of measures in areas related to the rule of law. These relate in particular to anti-corruption and public procurement procedures, incorporating all 17 remedial measures presented by Hungary in the context of the Conditionality Regulation, as well as judicial independence.

The plan includes reforms to reinforce the anti-corruption framework and to strengthen the legislative, institutional and practical arrangements to more effectively prevent, detect and correct fraud, corruption, conflicts of interest and other illegal practices which put the use of EU funding in Hungary at risk. Such measures include the establishment of an Integrity Authority equipped with the tools and capacity to act when public authorities fail to do so. They also include actions enabling the possibility of judicial review of decisions by the prosecution service or the investigating authority to dismiss a crime report or terminate criminal proceedings. These measures are underpinned by increased transparency, in particular through strengthened rules on asset declarations. In addition, significantly reinforced rules and procedures shall be in place to ensure the effective protection of the Union's financial interests, including through more stringent controls, a systematic use of effective tools, reinforced practices related to conflict of interests, and a strengthened role for the European Anti-fraud Office (OLAF).

The implementation of the measures included in the plan is expected to strengthen judicial independence by eliminating undue influences and making sure that decisions of the judges are protected against arbitrary decisions. To this end, the plan includes reforms to significantly strengthen the role and powers of the judges-led National Judicial Council to limit arbitrary decisions in the administration of courts, reforming the functioning of the Supreme Court to shield from risks of political influence over the Supreme Court, removing the role of the Constitutional Court in reviewing final decisions by judges at the request of public authorities, and removing the possibility for the Supreme Court to review preliminary questions that judges intend to refer to the European Court of Justice.

The plan also includes reforms to improve competition in public procurement, with binding targets to decrease the high share of public procurements resulting in single bids to 15%. To achieve this, Hungary plans to set up a comprehensive performance measurement framework, continuously monitor the level of single bids and assess the underlying reasons, develop and implement an action plan based on best practices, improve the transparency of ongoing public procurement procedures, and facilitate the participation of small and medium-sized companies in tenders.

The plan also includes reforms to improve the quality and transparency of the decision-making process and to ensure a more systematic involvement of social partners and stakeholders. These include improvements in the upfront publication of all information on public spending and public procurements, as well as ensuring easier access to public information, through accelerated court procedures for example. The involvement of stakeholders will be ensured through obligatory public consultation, with a minimum duration requirement for all legal acts. A monitoring body – which notably includes independent non-governmental organisations – will supervise the implementation of the plan, ensuring the involvement of stakeholders.

What measures must Hungary take before any RRF funds can be disbursed?

A total of 27 “super milestones” must be met by Hungary to ensure the effective protection of the financial interests of the Union before any payment under the RRF can be made.

They include, in particular:

• Effective implementation of all 17 remedial measures under the Rule of Law Conditionality Mechanism:
  • Measures to combat corruption: these include setting up new, independent bodies and authorities – an Integrity Authority and an Anti-Corruption Task Force – equipped with the tools and capacity to act when public authorities fail to do so; introducing the possibility for anyone to challenge in court the decisions of investigators or prosecutors not to investigate or prosecute; significantly increasing the amount of information required from public officials when making asset declarations; and increasing transparency.
  • Measures to improve competition and transparency in public procurement.
  • strengthened rules on conflicts of interest;
  • increased audit and control requirements;
  • the use of the Commission's Arachne risk-scoring tool, an IT tool that supports Member States in their anti-fraud activities, by enabling them to collect data on final recipients of funds, contractors, subcontractors and beneficial owners; and
  • ensuring that the European Anti-Fraud Office (OLAF) can effectively conduct investigations in Hungary.
• Measures to strengthen judicial independence, by:
  • increasing the powers of the independent National Judicial Council, to limit undue influence and discretionary decisions, and ensure a more objective and transparent administration of courts;
  • reforming the functioning of the Supreme Court to limit risks of political influence;
  • removing the role of the Constitutional Court in reviewing final decisions by judges on request of public authorities; and
  • removing the possibility for the Supreme Court to review questions that judges intend to refer to the European Court of Justice.
• Standard audit and control measures, similar to what is also required for some other Member States' RRPs:

• fully functioning national system for monitoring the implementation of the plan;

• • strategy setting out how the Hungarian audit authority will audit RRF funds, in line with international audit standards.

The Commission also considers that the audit and control measures envisaged by Hungary, which cover all the measures set out above, are adequate to protect the financial interests of the Union, if fully implemented before any RRF funds are disbursed.

For More Information

Press release: Commission finds that Hungary has not progressed enough in its reforms and must meet essential milestones for its Recovery and Resilience funds

Questions and Answers on the rule of law conditionality procedure in the case of Hungary

Recovery and Resilience Facility: Questions and Answers

Factsheet on Hungary's recovery and resilience plan

Proposal for a Council Implementing Decision on the approval of the assessment of the recovery and resilience plan for Hungary

Annex to the Proposal for a Council Implementing Decision on the approval of the assessment of the recovery and resilience plan for Hungary

Staff-working document accompanying the proposal for a Council Implementing Decision

Recovery and Resilience Facility

Recovery and Resilience Facility Regulation