Executive Summary Assessment and Recommendations Chapter 1. Fiscal Consolidation Dominates the Policy Agenda -The Fiscal Challenge -Raising the Employment Rate Needs to Remain the Focus of Policy -Update on the Business Environment -Update on Environment Policy -Annex: Progress in Structural Reform -Annex: Regression Analysis of the Fiscal Spending Cycle -Annex: Demand, Output and Prices: OECD Projections to 2008 -Annex: EU transfers under the 2007-20013 EU Budget Period -Annex: Further Information on Labour Market Reforms Chapter 2. Assessing the Government's Strategy for Fiscal Consolidation -Overview of the Government's Strategy -The New Measures to Tighten Fiscal Discipline -Revenue Measures: Many Should Be Reversed -Immediate Spending Measures: Wages Freeaes are Difficult to Maintain -Assessment of the Main Structural Reforms -Annex: Simulations of Debt Development -Annex: Early Retirement Pensions Chapter 3. Encouraging Sub-National Government Efficiency -The Sub-National Government System -Budgeting Issues -Spending Assignment Issues -Funding Arrangements for Local Governments -Annex: The Budget Balance rulesin Municipal Accounts -Annex: EU Transfers to Hungary's Municipalities under the 2007-13 Budget Chapter 4. Improving Reconciliation between Work and Family -Families in Hungary: Some Basic Facts -Key Features of Familiy Support -Policy Needs to Focus More on Reconciliation between Work and Family -Annex: Details of Family Support -Annex: Influence of Cash Benefits on Family Income -Annex: Impact of the January 2006 changes to Financial Support for Families Glossary