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		52014DC0416

			Recommendation for a COUNCIL RECOMMENDATION on Lithuania’s 2014 national reform programme and delivering a Council opinion on Lithuania’s 2014 convergence programme /* COM/2014/0416 final  - 2014/ () */

Recommendation for a
COUNCIL RECOMMENDATION
on Lithuania’s 2014 national reform
programme
and delivering a Council opinion on Lithuania’s 2014 convergence programme

THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the
Functioning of the European Union, and in particular Articles 121(2) and 148(4)
thereof,
Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1], and in particular
Article 9(2) thereof,
Having regard to the recommendation of the
European Commission[2],
Having regard to the resolutions of the
European Parliament[3],
Having regard to the conclusions of the
European Council,
Having regard to the opinion of the
Employment Committee,
Having regard to the opinion of the
Economic and Financial Committee,
Having regard to the opinion of the Social
Protection Committee,
Having regard to the opinion of the
Economic Policy Committee,
Whereas:
(1)
On 26 March 2010, the European Council agreed to
the Commission’s proposal to launch a new strategy for growth and jobs, Europe
2020, based on enhanced coordination of economic policies, which will focus on
the key areas where action is needed to boost Europe’s potential for
sustainable growth and competitiveness.
(2)
On 13 July 2010, the Council, on the basis of
the Commission's proposals, adopted a recommendation on the broad guidelines
for the economic policies of the Member States and the Union (2010 to 2014)
and, on 21 October 2010, adopted a decision on guidelines for the employment
policies of the Member States, which together form the ‘integrated guidelines’.
Member States were invited to take the integrated guidelines into account in
their national economic and employment policies.
(3)
On 29 June 2012, the Heads of State or
Government decided on a Compact for Growth and Jobs, providing a coherent
framework for action at national, EU and euro area levels using all possible
levers, instruments and policies. They decided on action to be taken at the
level of the Member States, in particular expressing full commitment to achieving
the objectives of the Europe 2020 Strategy and to implementing the
country-specific recommendations.
(4)
On 9 July 2013, the Council adopted a recommendation
on Lithuania’s national reform programme for 2013 and delivered its opinion on Lithuania’s
updated convergence programme for 2012-2016.
(5)
On 13 November 2013, the Commission adopted the
Annual Growth Survey[4],
marking the start of the 2014 European Semester of economic policy
coordination. On the same day on the basis of Regulation (EU) No 1176/2011, the
Commission adopted the Alert Mechanism Report[5],
in which it did not identify Lithuania as one of the Member States for which an
in-depth review would be carried out.
(6)
On 20 December 2013, the European Council
endorsed the priorities for ensuring financial stability, fiscal consolidation
and action to foster growth. It underscored the need to pursue differentiated,
growth-friendly fiscal consolidation, to restore normal lending conditions to
the economy, to promote growth and competitiveness, to tackle unemployment and
the social consequences of the crisis, and to modernise public administration.
(7)
On 1 April 2014, Lithuania submitted its 2014 national
reform programme and on 22 April 2014 its 2014 convergence programme. In order
to take account of their interlinkages, the two programmes have been assessed
at the same time.
(8)
The objective of the budgetary strategy outlined
in the 2014 Convergence Programme is to reach the medium-term objective by 2015
and to achieve a structural surplus of 0.9% of GDP at the end of the programme
in 2017. The programme confirms the previous medium-term objective of -1% of
GDP, which reflects the requirements of the Stability and Growth Pact. Based on
the (recalculated) structural budget balance, annual progress towards the medium-term
objective is at least 0.5% of GDP in 2014 and 2015. At the same time there is a
risk of deviation from the expenditure benchmark in 2015. Overall, the
adjustment path towards the medium-term objective is broadly in line with the
requirements of the Stability and Growth Pact. The programme shows the
debt decreasing substantially over the programme period to around 35% by 2017.
The macroeconomic scenario underpinning the budgetary projections in the
programme is broadly plausible. At the same time, for the years 2015-2017,
consolidation measures have yet to be specified. According to the Commission
2014 spring forecast, the structural adjustment in 2014 and 2015 is expected to
be at 0.2% and 0.6% of GDP respectively, and thus for 2014 0.3% of GDP below
the required tightening of 0.5% of GDP. Furthermore, the expenditure benchmark
is at risk of a significant deviation in 2014, with an additional albeit more
limited deviation in 2015. Based on its assessment of the programme and the
Commission forecast, pursuant to Council Regulation (EC) No 1466/97, the
Council is of the opinion that there is a risk of a significant deviation from
the adjustment path towards the medium-term objective as of 2014.
(9)
The relative importance of taxes considered less
detrimental to growth, such as property and environmental taxes, remains low. Tax
revenues rely to a large extent on indirect and labour taxation while the proportion
accounted for by environmental taxation remains low. Increased revenue from
more growth-friendly taxes could be used to alleviate the tax burden on low-
income earners, in particular the low- skilled. A partial review of the tax
system was undertaken at the beginning of 2013 and the government decided to
adjust capital taxation, raise the taxable income threshold and increase excise
duties for tobacco and alcohol. Overall, however, these measures will have a
rather negative effect on revenues. Further steps on improving the
sustainability of public finances and strengthening the revenue side therefore remain
crucial. No major measures were taken following the 2013 country-specific
recommendation on environmental taxation. There was limited progress in strengthening
the fiscal framework, as expenditure ceilings remain insufficiently binding and
legislative changes have not yet been approved. Lithuania
continues to face challenges in terms of tax compliance, in particular to tackle VAT fraud by, among others, strengthening risk management
measures. The 2013-14 tax
compliance action plan is being implemented and first estimates suggest some
positive effects. In 2013, a set of measures was taken to strengthen tax
compliance in the field of VAT and excise duties. For 2014-2015 a new targeted
strategy has been launched.
(10)
Unfavourable demographic developments cast doubts
on Lithuania’s long-term fiscal sustainability. Pension spending is projected
to increase substantially and is estimated over 50 years to reach almost double
the EU average. The gradual increase of the statutory retirement age that
started in 2012 is not enough to keep up with shrinkage in the labour force and
rising life expectancy. In addition, the sharp rise in poverty and severe
material deprivation among older people points to problems linked to pension adequacy.
Lithuania has made important but isolated steps in the right direction and more
significant changes are needed to implement a comprehensive reform. It has completed
the reform of the second pension pillar, but neither occupational schemes nor voluntary
pension accumulation are widely used. Alongside the increase in the statutory
retirement age, measures that ensure the employability of older workers and age-friendly
working environments are also necessary.
(11)
Overall unemployment has gone down but
structural unemployment remains high, suggesting skills mismatches, in
particular for the low-skilled. Youth unemployment and the rates of young
people not in education employment or training are decreasing, but are still
high. The limited coverage of active labour market policies remains a challenge,
and its effectiveness and timeliness needs to be improved. Skilled labour
shortages are forecast to become even more pronounced in the future. To improve
young people's employability it is important to improve the labour-market
relevance of vocational and higher education, improve the quality of apprenticeship
schemes and work-based learning, in partnership with the private sector
including SMEs. Increased participation in lifelong learning remains
insufficient. A comprehensive review of the labour law, with the involvement of
social partners, is needed to find ways of alleviating the administrative
burden on employers. Primarily it will be essential to identify and eliminate
unnecessary restrictions affecting flexible contractual agreements, dismissal
provisions and working time arrangements.
(12)
Despite recent improvement, working-age poverty
remains above the EU average. Increases in the minimum monthly wage and
non-taxable threshold have helped to address poverty. However, old-age poverty
and severe material deprivation have risen steeply in recent years. In 2012-13,
the cash social assistance reform pilot resulted in a lower number of social
beneficiaries and expenditure on cash social benefits. In 2014, the pilot was
expanded to all municipalities. There is a need to ensure monitoring and
evaluation as regards the effects of the reform on the neediest. The coverage
of activation measures for long-term unemployed social assistance beneficiaries
is insufficient. Moreover, the measures are still focused on public works
schemes, and thus provide income support, but do not help to improve the beneficiaries'
employability. The impact of the reform on those on low incomes needs to be
assessed. Lithuania adopted the 2014-20 Action Plan for Enhancing Social
Inclusion. However, there remains a need to establish the main target groups, the
budget and concrete measures, specifying how the targets will be achieved and how
the various ministries, local governments and civil society actors implementing
the Action Plan will cooperate.
(13)
The government has been undertaking an ambitious
reform of state-owned enterprises since 2010. Final legal acts were approved in
December 2013, amending the transparency guidelines requiring all state-owned
enterprises, as of 2014, to provide separate data for commercial and
non-commercial functions in their annual reports. A first report detailing this
breakdown is envisaged for August 2014. It should allow a more detailed
assessment of the success of this change. However, the number of independent
board members in state-owned enterprises remains small, partly due to legal
constraints applying to state and municipal enterprises. Legal changes are
being proposed that would allow for independent members to be appointed to the
boards of for all state-owned enterprises. The effectiveness of separation
commercial and non-commercial functions and the professionalisation of boards
will have to be assessed once fully implemented.
(14)
Electricity and gas links to neighbouring Member
States remain underdeveloped, resulting in limited competition and high prices.
Competition in the domestic markets has been strengthened through the
liberalisation of the gas and electricity markets, but so far customers have
not exercised their rights to change suppliers. While the government has made
energy interconnections a priority, these have yet to be finalised. An
important gas pipeline has been commissioned and the LNG terminal in Klaipeda
is expected to become operational by December 2014. Some progress has been
achieved with regard to the interconnections of the Lithuanian energy network
with the EU energy market. Furthermore, energy efficiency needs to improve. Lithuania
has made some progress on the energy efficiency of buildings, including with
respect to investments under the JESSICA holding fund. In 2013 legislative
measures were taken to accelerate the absorption of the holding fund. At the
beginning of 2014, projects had been finalised, and initial applications have
increased considerably. Legal changes involve heating subsidies being reduced
if residents reject renovation, thus removing disincentives to renovation.
(15)
In the context of the European Semester, the Commission
has carried out a comprehensive analysis of Lithuania’s economic policy. It has
assessed the convergence programme and the national reform programme. It has
taken into account not only their relevance for sustainable fiscal and
socio-economic policy in Lithuania but also their compliance with EU rules and
guidance, given the need to reinforce the overall economic governance of the
European Union by providing EU-level input into future national decisions. Its
recommendations under the European Semester are reflected in
recommendations (1) to (6) below.
(16)
In the light of this assessment, the Council has
examined Lithuania’s convergence programme, and its opinion[6] is reflected in
particular in recommendation (1) below.
HEREBY RECOMMENDS that Lithuania take
action within the period 2014-2015 to:
1.
Reinforce the budgetary measures for 2014 in the
light of expenditure growth exceeding the benchmark and the emerging gap of
0.3% of GDP in terms of structural effort based on
the Commission 2014 spring forecast, pointing to a risk of significant
deviation relative to the Stability and Growth Pact requirements. In 2015,
strengthen the budgetary strategy to ensure the required adjustment of 0.5% of
GDP towards the medium-term objective. Thereafter ensure that the medium-term
objective is adhered to. Complement the budgetary strategy with a further
strengthened fiscal framework, in particular by ensuring binding expenditure
ceilings when setting the medium-term budgetary framework. Further review the
tax system and consider increasing those taxes that are least detrimental to
growth, such as recurrent property and environmental taxation, while continuing
to improve tax compliance.
2.
Adopt and implement legislation on a
comprehensive pension system reform. In particular, align the statutory
retirement age with life expectancy, restrict access to early retirement,
establish clear rules for the indexation of pensions, and promote the use of
complementary savings schemes. Underpin pension reform with measures that
promote the employability of older workers.
3.
Better target active labour market policy
measures to the low-skilled and long-term unemployed. . Improve coverage and
adequacy of unemployment benefits and link them to activation. Address
persistent skills mismatches by improving the labour-market relevance of education
and promote life-long learning. In order to increase employability of young
people, prioritise offering quality apprenticeships and strengthen partnership
with the private sector. Review the appropriateness of labour legislation, in
particular with regard to the framework for labour contracts and for
working-time arrangements, in consultation with social partners.
4.
Ensure adequate coverage of those most in need and
continue to strengthen the links between cash social assistance and activation
measures.
5.
Complete the implementation of the reform of
state-owned enterprises as planned; in particular by finalising the separation
of commercial and non-commercial activities, further professionalising
executive boards and closely monitoring compliance with the requirements of the
reform.
6.
Step up measures to improve the energy
efficiency of buildings, through a rapid implementation of the holding fund. Continue
the development of cross-border connections to neighbouring Member States for
both electricity and gas to diversify energy sources and promote competition
through improved integration of the Baltic energy markets.
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[1]               OJ L 209, 2.8.1997, p. 1.
[2]               COM(2014) 416 final.
[3]               P7_TA(2014)0128 and P7_TA(2014)0129.
[4]               COM(2013) 800 final.
[5]               COM(2013) 790 final.
[6]               Under Article 9(2) of Council Regulation (EC) No
1466/97.


				|

		52013DC0353

			Recommendation for a COUNCIL RECOMMENDATION on the Czech Republic’s 2013 national reform programme and delivering a Council opinion on the Czech Republic’s convergence programme for 2012-2016 /* COM/2013/0353 final */

Recommendation for a
COUNCIL RECOMMENDATION
on the Czech Republic’s 2013 national
reform programme
and delivering a Council opinion on the Czech Republic’s convergence programme
for 2012-2016
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the
Functioning of the European Union, and in particular Articles 121(2) and 148(4)
thereof,
Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1], and in particular Article 9(2)
thereof,
Having regard to the recommendation of the
European Commission[2],
Having regard to the resolutions of the
European Parliament[3],
Having regard to the conclusions of the
European Council,
Having regard to the opinion of the
Employment Committee,
After consulting the Economic and Financial
Committee,
Whereas:
(1)       On 26 March 2010, the
European Council agreed to the Commission’s proposal to launch a new strategy
for growth and jobs, Europe 2020, based on enhanced coordination of economic
policies, which will focus on the key areas where action is needed to boost Europe’s potential for sustainable growth and competitiveness.
(2)       On 13 July 2010, on the
basis of the Commission's proposals, the Council adopted a recommendation on
the broad guidelines for the economic policies of the Member States and the
Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines
for the employment policies of the Member States[4],
which together form the ‘integrated guidelines’. Member States were invited to
take the integrated guidelines into account in their national economic and
employment policies.
(3)       On 29 June 2012, the Heads
of State or Government decided on a Compact for Growth and Jobs, providing a
coherent framework for action at national, EU and euro area levels using all
possible levers, instruments and policies. They decided on action to be taken
at the level of the Member States, in particular expressing full commitment to
achieving the objectives of the Europe 2020 Strategy and to implementing the
country-specific recommendations.
(4)       On 6 July 2012, the
Council adopted a recommendation on the Czech Republic’s national reform
programme for 2012 and delivered its opinion on the Czech Republic’s updated
convergence programme for 2011-2015.
(5)       On 28 November 2012, the
Commission adopted the Annual Growth Survey[5],
marking the start of the 2013 European Semester for economic policy
coordination. Also on 28 November 2012, the Commission, on the basis of
Regulation (EU) No 1176/2011, adopted the second Alert Mechanism Report[6], in which it did not identify
the Czech Republic as one of the Member States for which an in-depth review
would be carried out.
(6)       On 14 March 2013, the
European Council endorsed the priorities for ensuring financial stability,
fiscal consolidation and action to foster growth. It underscored the need to
pursue differentiated, growth-friendly fiscal consolidation, to restore normal
lending conditions to the economy, to promote growth and competitiveness, to
tackle unemployment and the social consequences of the crisis, and to modernise
public administration.
(7)       On 26 April 2013, the
Czech Republic submitted its 2013 convergence programme covering the period 2013-2016
and, on 17 April 2013, its 2013 national reform programme. In order to take
account of their interlinkages, the two programmes have been assessed at the
same time.
(8)       Based on the assessment of
the 2013 convergence programme pursuant to Council Regulation (EC) No 1466/97,
the Council is of the opinion that the Czech Republic has reduced the headline deficit
by 1.4% of GDP from 2009 to 2012 due to substantial consolidation efforts and
that, based on current expectations, it is on track to correct the excessive
deficit. The macroeconomic scenario underpinning the budgetary projections in
the programme is plausible. According to the convergence programme, real
GDP growth is expected to be at 0% and 1.2% in 2013 and 2014, respectively,
compared to -0.4% and 1.6 % in 2013 and 2014 respectively in the Commission
2013 spring forecast. The objective of the budgetary strategy outlined in the
programme is to keep the general government deficit below the 3% of GDP
reference value. The general government deficit target of 2.9% of GDP in 2013
is in line with the deadline for correcting the excessive deficit set out in
the Council recommendation of 2 December 2009. The Commission 2013 spring
forecast projects the government deficit at 2.9% and 3% of GDP in 2013 and 2014,
respectively. There is a risk of worse-than-expected budgetary outcome in 2013
stemming from additional corrections in EU funds reimbursements. On the
positive side, one-off revenues related to the planned auction of new telecom
frequency bands could result in a better-than-expected budgetary outcome in
2013. The convergence programme confirms the previous medium-term
objective of a deficit of 1% of GDP, which adequately reflects the requirements
of the Stability and Growth Pact. The (recalculated) structural budget deficit
is projected to increase by 0.3%, 0.2% and 0.5% of GDP in 2014, 2015 and 2016
respectively; therefore no adjustment towards the medium-term objective is
foreseen in the programme, which is not in line with the Stability and Growth
Pact. The rate of growth of government expenditure complies with the
expenditure benchmark of the Stability and Growth Pact in 2014 but deviates by
0.3% and 0.5% of GDP in 2015 and 2016 respectively. According to the
convergence programme, the debt-to-GDP ratio is forecast to continue to
increase over the programme period, albeit at a slowing pace, and to reach 51.9%
of GDP in 2016.
(9)       Swift and durable recovery
is hindered in the Czech Republic by repeated cuts in public investment
expenditure. Safeguarding growth-enhancing expenditure with a high
multiplicative effect, including projects co-financed by EU funds, would not
only help buttress recovery but could also contribute to tackling the long-term
challenges. Substantial growth effects could follow from prioritising
expenditure on measures aiming at increasing employment, research and
innovation, education, childcare facilities and infrastructure projects. At the
same time, ensuring legality, regularity and efficiency of such spending is
key.
(10)     Limited progress was made
in 2012 on tax reform. While the real estate transfer tax was increased, no
steps were taken to raise the very low level of recurrent property taxes. Plans
to introduce a CO2 tax and abolish exemptions from excise duties on natural gas
for heating have been dropped. The implicit tax rate on energy is below the EU
average and vehicle circulation taxes remain very low. Structural challenges
also remain in taxation of labour, in particular affecting low-income earners
and part-time workers. Only marginal steps were taken to reduce discrepancies
in the tax treatment of employees and the self-employed. The Czech Republic also has room to further improve the efficiency of its tax administration. As
regards personal and company income taxes, the government is planning to
establish a Single Collection Point in 2015, which could effectively streamline
the tax administration and help reduce the complexity of the current system.
However, a drawback of the reform is that the tax bases for personal income
tax, health and social contributions will not be harmonised, thereby leaving a
large part of the potential benefits of the reform unexploited.
(11)     The Czech Republic has a sustainability gap of 5.0 % of GDP, which is above the EU average. This gap
largely reflects the projected long-term cost of ageing, which is driven by the
expected increases in pension expenditure and in health and long-term care
spending. An important source of the unsustainable increase in pension
expenditure lies in the slow rate at which the statutory retirement age is
being raised, in particular for men. Ensuring that the statutory retirement age
increases more rapidly compared to current legislation and linking it to life
expectancy would significantly strengthen the sustainability of the system. Moreover,
an indexation formula based on prices, when implemented over the long run, would
generate substantial savings and at the same time preserve the purchasing power
of pensioners.
(12)     Contrary to the 2012
country-specific recommendation, the government introduced a pre-retirement
scheme in 2013, which offers the possibility of drawing a pension up to five
years before reaching the statutory retirement age. The pre-retirement pensions
are going to be paid from the (third) pension savings pillar. However, the
pillar enjoys a substantial state subsidy through direct co-payments and tax
deductibility of contributions. Irrespective of whether the eligibility
criteria for gaining access to the scheme will be effectively met by only a limited
number of persons, as the government expects, the measure allows beneficiaries
to use the previously accrued public subsidy for a purpose that goes against
policies to promote longer working lives.
(13)     The expected increase in
health and long-term care spending also provides a substantial contribution to
the cost of ageing and the large sustainability gap. Reforms aimed at improving
the efficiency of the health system via cost containment and more
market-oriented solutions have been implemented in recent years in the Czech Republic. However, problems still exist. Compared to other Member States, the Czech
healthcare system tends to be excessively centred on hospital care, which gives
rise to inefficiencies. There is scope to improve the provision of care in the
most clinically appropriate and cost-effective way, for example by moving to
day-of-surgery admission and reducing inappropriate lengths of stay in acute
care hospitals.
(14)     Recent OECD projections
show that full convergence of the female and male employment rates would halt
the projected decline of the total labour force and increase GDP per capita by
as much as 16.5 % by 2030. The government has proposed a draft Act on 22
May 2013 to introduce private ‘child groups’ led by professional nannies,
accompanied by tax subsidies for care providers and participating families. This
is a step in the right direction but is only a partial response to the issue.
Despite a continued shortage of childcare facilities, in particular for under
three year olds, there are no plans to increase budgetary support to public
pre-school childcare facilities. The employability and labour market
participation of disadvantaged people also remains a problem: there is scope
for increasing the efficiency and effectiveness of public employment services.
(15)     The 2012 country-specific
recommendation on public administration specifically mentioned the need to increase
the efficiency of public administration and step up the fight against
corruption. However, only limited progress has been made in adopting the
priority legal acts under the Czech anti-corruption strategy for 2011-12. A new
anti-corruption strategy for 2013-14, adopted by the government in January
2013, needs to be followed up by the urgent adoption of outstanding priority
acts, such as the Public Servants Act. This new legislation will need to adequately
separate political appointees from non-political staff, guarantee independence
of state officials and create a well-functioning career system to reduce high
staff turnover. The Czech Republic has made substantial progress in
implementing the Public Procurement Act, which came into force in April 2012.
However, difficulties in implementing the Act have been reported by local
authorities. As regards the implementation of EU funds, most of the measures
included in the action plan to strengthen the management and control system
were implemented by the end of 2012. However, the Czech authorities will need
to ensure continuous monitoring of the action plan.
(16)     At the level of compulsory
education, Czech pupils attain broadly average results in international
comparisons. In mathematics and science, however, the education outcomes have
worsened rapidly over time. The Czech authorities have responded with a set of
measures which entails the development of minimum education standards, which
are to be used for nationwide testing of pupils. However, a more integrated
system should be developed, ensuring that pupils, teachers and schools that
underperform in the tests receive systematic support would further raise the
level of ambition of the reform. The main challenge facing the Czech higher education
system is to ensure that the rising number of students is equipped with the skills
needed to succeed in the labour market. A reform of the Higher Education Act is
being discussed to introduce differentiated funding arrangements and enhance
accreditation. These are relevant and ambitious proposals, although their
actual impact will depend on the final design of the reform. The authorities
also plan to adopt revised evaluation standards for funding of research
institutions. Increasing the share of quality indicators, including enhancing
the collaboration with the business sector, would help the Czech research and
innovation system reach a higher level of excellence.
(17)     The Czech Republic is amongst the EU Member States with the highest number of regulated professions. A
public consultation on the review of the regulatory framework for professions was
conducted in 2012 and results are to be presented in 2013. This is an important
step in order to reduce or eliminate barriers to those professions for which
regulation is not proven necessary or considered excessive (including the
length of mandatory traineeships) and for which an easier access could unlock
further employment and growth. Despite improvements in recent years, the Czech Republic has still one of the highest energy intensity in the EU, in particular in
the buildings and energy sector.
(18)     In the context of the
European Semester, the Commission has carried out a comprehensive analysis of
the Czech Republic’s economic policy. It has assessed the convergence programme
and national reform programme. It has taken into account not only their
relevance for sustainable fiscal and socio-economic policy in the Czech
Republic but also their compliance with EU rules and guidance, given the need
to reinforce the overall economic governance of the European Union by providing
EU-level input into future national decisions. Its recommendations under the
European Semester are reflected in recommendations (1) to (7) below.
(19)     In the light of this
assessment, the Council has examined the Czech Republic’s convergence
programme, and its opinion[7]
is reflected in particular in recommendation (1) below,
HEREBY RECOMMENDS that the Czech Republic should take action within the period 2013-2014 to:
1.           Implement as envisaged the
budget for the year 2013 so as to correct the excessive deficit in 2013 in a
sustainable manner and achieve the structural adjustment effort specified in
the Council recommendations under the EDP. For the year 2014 and beyond,
reinforce and rigorously implement the budgetary strategy, supported by
sufficiently specified measures, to ensure an adequate fiscal effort to make
sufficient progress towards the medium-term objective. Prioritise
growth-enhancing expenditure including committing on time remaining projects
co-financed with EU funds under the current financial framework.
2.           Reduce the high level of
taxation on labour by shifting taxation to areas less detrimental to growth, such
as recurrent taxes on housing and vehicle circulation taxes. Further reduce
discrepancies in the tax treatment of employees and the self-employed. Improve
tax compliance and reduce compliance costs by establishing the Single
Collection Point and harmonising the tax bases for personal income tax and
social and health contributions.
3.           Speed up the increase of the
statutory retirement age compared to current legislation, introduce a clear
link between the statutory retirement age and life expectancy, and revise the
indexation mechanism. Accompany the increase in retirement age with measures
promoting employability of older workers and reduce early exit pathways. In
particular, remove the public subsidy for the pre-retirement scheme. Take
measures to significantly improve cost-effectiveness of healthcare expenditure,
in particular for hospital care.
4.           Take measures to strengthen
the efficiency and effectiveness of the public employment service. Increase
significantly the availability of inclusive childcare facilities with a focus
on children up to three years old, and the participation of Roma children, notably
by adopting and implementing the law on private childcare facilities and
strengthening the capacities of public childcare facilities.
5.           Ensure implementation of
the anti-corruption strategy for 2013-2014. Adopt a Public Servants Act that
should ensure a stable, efficient and professional state administration
service. Improve the management of EU funds in view of the 2014-2020
programming period. Strengthen the capacity for implementation of public
tenders at local and regional level.
6.           Establish a comprehensive
evaluation framework in compulsory education and take targeted measures to
support schools that rank low in educational outcomes. Adopt measures to
enhance accreditation and funding of higher education. Increase the share of
performance-based funding of research institutions.
7.           Drawing on the on-going
review, proceed with a reform of regulated professions, by reducing or
eliminating entry barriers and reserves of activities where they are
unjustified. Take further measures to improve energy efficiency in the
buildings and industry sectors.
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[1]               OJ L 209, 2.8.1997, p. 1.
[2]               COM(2013) 353 final.
[3]               P7_TA(2013)0052 and P7_TA(2013)0053.
[4]               Council Decision 2013/208/EU of 22 April 2013.
[5]               COM(2012) 750 final.
[6]               COM(2012) 751 final.
[7]               Under Article 9(2) of Council Regulation (EC) No
1466/97.


title: Recommendation for a Council opinion in accordance with the third paragraph of Article 5 of Council Regulation (EC) No 1466/97 of 7 July 1997 on the updated stability programme of Italy, 2006-2011

text:
Important legal notice

|

52007SC0067

Recommendation for a Council opinion in accordance with the third paragraph of Article 5 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated stability programme of Italy, 2006-2011  /* SEC/2007/0067 final */

	[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |Brussels, 23.1.2007SEC(2007) 67 finalRecommendation for aCOUNCIL OPINIONin accordance with the third paragraph of Article 5 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated stability programme of Italy, 2006-2011(presented by the Commission)EXPLANATORY MEMORANDUM1. GENERAL BACKGROUNDThe Stability and Growth Pact, which entered into force on 1 July 1998, is based on the objective of sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation. The 2005 reform of the Pact acknowledged its usefulness in anchoring fiscal discipline but sought to strengthen its effectiveness and economic underpinnings as well as to safeguard the sustainability of the public finances in the long run.Council Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies[1], which is part of the Stability and Growth Pact, stipulates that Member States have to submit, to the Council and the Commission, stability or convergence programmes and annual updates thereof (Member States that have already adopted the single currency submit (updated) stability programmes and Member States that have not yet adopted it submit (updated) convergence programmes). The first stability programme of Italy was submitted in December 1998. In accordance with the Regulation, the Council delivered an opinion on it on 8 February 1999 on the basis of a recommendation from the Commission and after having consulted the Economic and Financial Committee. In accordance with the same procedure, updated stability and convergence programmes are assessed by the Commission and examined by the Committee mentioned above, while the Council may examine them.2. BACKGROUND FOR THE ASSESSMENT OF THE UPDATED PROGRAMMEThe Commission has examined the most recent update of the stability programme of Italy, submitted on 4 December 2006, and has adopted a recommendation for a Council opinion on it (see box for the main points covered by the assessment).In order to set the scene against which the budgetary strategy in the updated stability programme is assessed, the following paragraphs summarise:1.  the economic and budgetary performance over the last ten years2.  the country’s position under the corrective arm of the Stability and Growth Pact (excessive deficit procedure)3.  the most recent assessment of the country’s position under the preventive arm of the Stability and Growth Pact (summary of the Council opinion on the previous update of the stability programme) and4.  the Commission’s assessment of the October 2006 national reform programme.2.1. Recent economic and budgetary performanceIn Italy, structural weaknesses feeding into low productivity growth and a loss of external competitiveness appear to be at the root of the country's dismal growth performance over the past decade. Real GDP growth has been below the euro area average since the mid 1990s and potential growth is estimated to have fallen from above 2% up to the early 1990s to 1¼% in the 2000s. Despite weak growth, inflation has remained slightly higher than the euro area average until 2005. On the positive side, Italy is one of the few countries to have enjoyed robust employment growth since the turn of the century and its unemployment rate has fallen substantially. But, while there remains a long way to go before Italy catches up with the EU average in terms of employment rates, the odd combination of dynamic employment growth and sluggish GDP growth highlights Italy's productivity problem. On the public finances front, the general government deficit has been above the 3% of GDP Treaty reference value since 2003 and the debt-to-GDP ratio remains very high and has started increasing again in 2005, to 106.6% of GDP. The cyclically-adjusted primary balance has steadily deteriorated since 1998 and the ratio of current primary expenditure to GDP has not ceased to increase since 2001.2.2. The excessive deficit procedure for ItalyOn 28 July 2005, the Council adopted a decision stating that Italy had an excessive deficit in accordance with Article 104(6). At the same time, the Council addressed a recommendation under Article 104(7) specifying that the excessive deficit had to be corrected by 2007. In particular, Italy was recommended to implement with rigour the 2005 budget; reduce the structural deficit by a minimum 1.6% of GDP by 2007 relative to its level in 2005, with at least half of this correction taking place in 2006; and, ensure that the debt-to-GDP ratio diminishes and approaches the reference value at a satisfactory pace.On 22 February 2006, the Commission adopted a communication concluding that the actions taken by Italy, if fully implemented and effective, would be consistent with the Council recommendation. However, implementation uncertainties persist, which will require continuous monitoring.2.3. The assessment in the Council opinion on the previous programmeOn 14 March 2006, the Council adopted its opinion on the previous update of the stability programme, covering the period 2005-2009. The Council was of the opinion that “the programme can be considered as consistent with a correction of the excessive deficit by 2007, subject to a full and effective implementation of the 2006 budget and the specification and adoption of further substantial measures for 2007. In the light of the recommendations made by the Council under Article 104(7) of the Treaty on 28 July 2005, and in order to strengthen the sustainability of public finances, the Council invited Italy to:(i) achieve the structural efforts envisaged in the programme for 2006 and 2007 in order to ensure the correction of the excessive deficit by 2007 in a credible and sustainable manner;(ii) spell out the broad measures underlying the adjustment path in 2007 and the outer years of the programme and ensure that the adjustment towards the medium-term objective remains in line with the Stability and Growth Pact requirements;(iii) ensure that the debt-to-GDP ratio is declining towards the 60% of GDP Treaty reference value at a more rapid pace including by paying particular attention to factors other than net borrowing which contribute to the change in debt levels; and(iv) improve the budgetary process by increasing its transparency and by an effective implementation of the past and new mechanisms to monitor, control and report expenditure.2.4. The Commission assessment of the October 2006 national reform programmeThe Implementation Report of the National Reform Programme of Italy, provided in the context of the renewed Lisbon strategy for growth and jobs, was submitted on 19 October 2006. Italy's National Reform Programme identified as key challenges/priorities: ensuring long-term fiscal sustainability; extending the area of free choice for citizens and companies; granting incentives for scientific research and technological innovation; strengthening education and training; upgrading infrastructure; protecting the environment.The Commission’s assessment of this programme (adopted as part of its December 2006 Annual Progress Report[2]) showed that, compared to last year's National Reform Programme, the Italian Implementation Report presents a clearer strategy, covering all policy areas and the synergies between them and is thus more ambitious. Progress is most extensive in the micro-economic field. Strategies and measures proposed in the macro area are generally appropriate but implementation is crucial. Employment policy needs to be reinforced in certain key areas.Against the background of the identified strengths and weaknesses, Italy was recommended to take action in the areas of: long-term sustainability of public finances; competition in products and service markets; regional disparities in employment; and lifelong learning and education.Box: Main points covered by the assessment As required by Article 5(1) (for stability programmes) and Article 9(1) (for convergence programmes) of Council Regulation (EC) No 1466/97, the assessment covers the following points: whether the economic assumptions on which the programme is based are plausible; the medium-term budgetary objective (MTO) presented by the Member State and whether the adjustment path towards it is appropriate; whether measures being taken and/or proposed to respect that adjustment path are sufficient to achieve the MTO over the cycle; when assessing the adjustment path towards the MTO, whether a higher adjustment effort is made in economic good times, whereas the effort may be more limited in economic bad times, and, for euro-area and ERM II Member States, whether the Member State pursues an annual improvement of the cyclically-adjusted balance, net of one-off and other temporary measures, of 0.5% of GDP as a benchmark to meet its MTO; when defining the adjustment path to the MTO (for Member States that have not yet reached it) or allowing a temporary deviation from the MTO (for Member States that have), the implementation of major structural reforms which have direct long-term cost-saving effects (including by raising potential growth) and therefore a verifiable impact on the long-term sustainability of public finances (subject to the condition that an appropriate safety margin with respect to the 3% of GDP reference value is preserved and that the budgetary position is expected to return to the MTO within the programme period), with special attention for pension reforms introducing a multi-pillar system that includes a mandatory, fully-funded pillar; whether the economic policies of the Member State are consistent with the broad economic policy guidelines. The plausibility of the programme’s macroeconomic assumptions is assessed by reference to the Commission services’ autumn 2006 forecast, using also the commonly agreed methodology for the estimation of potential output and cyclically-adjusted balances. The assessment of consistency with the broad economic policy guidelines is made against the broad economic policy guidelines in the area of public finances as included in the integrated guidelines for the period 2005-2008. The assessment also examines: the evolution of the debt ratio and the outlook for the long-term sustainability of the public finances, which should be given “sufficient attention in the surveillance of budgetary positions” according to the Council report of 20 March 2005 on “Improving the implementation of the Stability and Growth Pact”. A Commission Communication of 12 October 2006 sets out the approach to the assessment of long-term sustainability[3]; the degree of integration with the national reform programme, submitted by Member States in the context of the Lisbon strategy for growth and jobs. In its cover note of 7 June 2005 to the European Council on the broad economic policy guidelines for the period 2005-2008, the ECOFIN Council stated that the national reform programmes should be consistent with the stability and convergence programmes; compliance with the code of conduct[4], which inter alia prescribes a common structure and set of data tables for the stability and convergence programmes. |-  Recommendation for aCOUNCIL OPINIONin accordance with the third paragraph of Article 5 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated stability programme of Italy, 2006-2011THE COUNCIL OF THE EUROPEAN UNION,Having regard to the Treaty establishing the European Community,Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies[5], and in particular Article 5(3) thereof,Having regard to the recommendation of the Commission,After consulting the Economic and Financial Committee,HAS DELIVERED THIS OPINION:5.  On [27 February 2007] the Council examined the updated stability programme of Italy, which covers the period 2006 to 2011.6.  The macroeconomic scenario underlying the programme envisages that real GDP growth will initially decline from 1.6% in 2006 to 1.3% in 2007. Afterwards, economic growth will gradually pick up, to reach 1.7% in 2011. Assessed against currently available information, this scenario appears to be based on plausible growth assumptions. The programme’s projections for inflation appear to be on the low side in the outer years.7.  The 2006 stability programme update projects the 2006 deficit at 5.7% of GDP[6]. This contrasts with the 4.7% of GDP in the Commission services’ autumn 2006 forecast. The Commission scenario does not take account of the 0.9% of GDP slippage due to the cancellation of railway company's debt related to the high speed project ( Ferrovie dello Stato – RFI/TAV )[7], following a decision taken in the final phase of the budgetary process. In turn, the Commission services' autumn forecast for the general government deficit is higher than the 3.5% of GDP set in the previous update of the stability programme. The 1.2% of GDP difference is essentially explained by the different impact of one-offs (0.8% of GDP) and the permanent negative impact of the European Court of Justice's ruling on VAT on company cars (around 0.4% of GDP).8.  The budgetary strategy in the programme aims at correcting the excessive deficit in 2007 (the deficit is planned to decline to 2.8% of GDP). Thereafter, the government balance is planned to continue improving steadily over the programme period, to turn into a positive 0.1% of GDP in 2011. The primary balance is planned to improve from -0.9% of GDP in 20066 to 5% in 2011. Until 2007, the adjustment is essentially revenue-based, driven by additional direct taxation and social contributions. Beyond 2007, the information is limited to the size of the correction required to achieve the budgetary targets relative to trends. Compared with the previous programme, the targets from 2007 onwards are broadly unchanged against a less favourable macroeconomic scenario but, due to the much higher 2006 deficit starting point, the adjustment in 2007 is much higher.9.  The structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) calculated according to the commonly agreed methodology is planned to improve from a deficit of around 4% of GDP in 2006 to a surplus of ¼% at the end of the programme period (2011). As in the previous update of the stability programme, the medium-term objective (MTO) for the budgetary position presented in the programme is a balanced budget in structural terms, which the programme aims to achieve by 2010. The previous update of the programme did not plan to reach the MTO within the programme period (which stopped in 2009). As the MTO is more demanding than the minimum benchmark (estimated at a deficit of around 1½% of GDP), achieving it should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The MTO lies within the range indicated for euro-area and ERM II Member States in the Stability and Growth Pact and the code of conduct and adequately reflects the debt ratio and average potential output growth in the long term.10.  The budgetary outcomes could be better than projected in the programme in 2006 and worse than projected in the programme after 2007. For 2007 the risks to the budgetary projections in the programme appear broadly balanced. On the positive side, in view of the developments of cash data, the 2006 deficit could turn out lower than the projected 5.7% of GDP, implying a better-than-projected base effect for 2007. However, considerable risks are attached to the effectiveness of several measures included in the 2007 budget. Risks to public finances in the medium term cannot be excluded, in particular stemming from the repeated overruns in health care expenditure. In addition, after 2007, no details are given on the adjustment strategy, increasing the risks attached to the planned fiscal consolidation.11.  In view of this risk assessment, the budgetary stance in the programme seems broadly consistent with a correction of the excessive deficit by 2007 as recommended by the Council, provided the budget measures are fully and effectively implemented. Overall, there are negative risks to the 1¼% of GDP planned structural adjustment in 2007. However, available data pointing to a better-than-projected structural adjustment in 2006 (¼% of GDP) could imply a better carry-over into 2007. The budgetary stance may not provide a sufficient safety margin against breaching the 3% of GDP deficit threshold with normal macroeconomic fluctuations before 2010. Furthermore, it may not be sufficient to ensure that the MTO is achieved within the programme period, as envisaged in the programme. In the years following the correction of the excessive deficit, the pace of the adjustment towards the MTO implied by the programme is broadly in line with the Stability and Growth Pact, which specifies that, for euro-area and ERM II Member States, the annual improvement in the structural balance should be 0.5% of GDP as a benchmark and that the adjustment should be higher in good economic times and could be lower in bad economic times.12.  Government gross debt is officially estimated to have reached 107.6% of GDP in 2006, far above the 60% of GDP Treaty reference value. The programme projects the debt ratio to gradually decline to reach around 98% of GDP in 2011. The evolution of the debt ratio is likely to be more favourable than projected in the programme in 2006 given cash data developments. The risks to the projected evolution of the debt appear to be broadly balanced in 2007. After 2007, the lack of details on the adjustment strategy increases the risks attached to the planned debt reduction. In view of this risk assessment, the debt ratio be may not be sufficiently diminishing towards the reference value over the programme period.13.  The long-term budgetary impact of ageing in Italy is lower than the EU average, with pension expenditure showing a more limited increase than on average in the EU, thanks to the pension reforms adopted, assuming they are fully implemented, notably including the planned periodical actuarial adjustment in line with life expectancy. Increasing the employment rate, notably of older workers, would improve workers' pensions in the future and contribute to the success of the pension reforms. The initial budgetary position, albeit slightly improved compared with 2005, constitutes a risk to sustainable public finances even before the long-term budgetary impact of an ageing population is considered. Moreover, the current level of gross debt is well above the Treaty reference value and reducing it will require high primary surpluses to be achieved and maintained over a long period. Overall, Italy appears to be at medium risk with regard to the sustainability of public finances.14.  The stability programme contains a qualitative assessment of the overall impact of the October 2006 implementation report of the national reform programme within the medium-term fiscal strategy. It provides some information on the direct budgetary costs or savings of the main reforms envisaged in the national reform programme and its budgetary projections seem to take into account the public finance implications of the actions outlined in the national reform programme. The measures in the area of public finances envisaged in the stability programme seem consistent with those foreseen in the national reform programme. In particular, both programmes address the issue of fiscal sustainability and envisage the implementation of a cut in the labour tax wedge over 2007-2008.15.  The budgetary strategy in the programme is broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008.16.  As regards the data requirements specified in the code of conduct for stability and convergence programmes, the programme has gaps in the required and optional data[8].The overall conclusion is that the programme is broadly consistent with a correction of the excessive deficit by 2007, subject to the full and effective implementation of the 2007 Budget. After 2007, the planned adjustment is in line with the requirements of the Stability and Growth Pact and would allow reaching the MTO by the end of the programme period. However, no details are given on the adjustment strategy, which itself represents a risk for the achievement of the budgetary targets after 2007 and hinders a proper assessment of the consolidation strategy.In view of the above assessment and also in the light of the recommendation under Article 104(7) of 28 July 2005, Italy is invited to:(i) achieve the planned fiscal consolidation in 2007 so as to correct the situation of excessive deficit in line with the Council recommendation under Article 104(7);(ii) ensure, after the excessive deficit has been corrected, adequate progress towards the MTO so as to achieve it by the end of the programme period and ensure that the debt-to-GDP ratio is reduced accordingly;(iii) in view of the very high level of debt, fully implement the adopted pension reforms so as to avoid significant increases in age-related spending; and(iv) improve the budgetary process by increasing its transparency, spelling out the budgetary strategy with a longer time perspective and effectively implementing mechanisms to monitor and control expenditure, especially health care expenditure.Italy is also invited to improve compliance with the data requirements of the code of conduct.  Comparison of key macroeconomic and budgetary projections2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 |Real GDP (% change) | SP Dec 2006 | 0.0 | 1.6 | 1.3 | 1.5 | 1.6 | 1.7 | 1.7 |COM Nov 2006 | 0.0 | 1.7 | 1.4 | 1.4 | n.a. | n.a. | n.a. |SP Dec 2005 | 0.0 | 1.5 | 1.5 | 1.7 | 1.8 | n.a. | n.a. |HICP inflation (%) | SP Dec 2006 | 2.2 | 2.2 | 2.1 | 1.7 | 1.5 | 1.5 | 1.5 |COM Nov 2006 | 2.2 | 2.3 | 2.0 | 1.9 | n.a. | n.a. | n.a. |SP Dec 2005 | 2.3 | 2.3 | 2.2 | 2.0 | 2.0 | n.a. | n.a. |Output gap (% of potential GDP) | SP Dec 20061 | -1.3 | -0.9 | -0.9 | -0.8 | -0.7 | -0.5 | -0.5 |COM Nov 20065 | -1.4 | -1.0 | -1.0 | -1.1 | n.a. | n.a. | n.a. |SP Dec 20051 | -1.5 | -1.2 | -1.0 | -0.8 | -0.6 | n.a. | n.a. |General government balance (% of GDP) | SP Dec 20067 | -4.1 | -5.7 | -2.8 | -2.2 | -1.5 | -0.7 | 0.1 |COM Nov 2006 | -4.1 | -4.7 | -2.9 | -3.1 | n.a. | n.a. | n.a. |SP Dec 2005 | -4.3 | -3.5 | -2.8 | -2.1 | -1.5 | n.a. | n.a. |Primary balance6 (% of GDP) | SP Dec 20067 | 0.7 | -0.9 | 2.2 | 2.8 | 3.4 | 4.2 | 5.0 |COM Nov 2006 | 0.5 | -0.1 | 1.8 | 1.7 | n.a. | n.a. | n.a. |SP Dec 2005 | 0.6 | 1.3 | 1.9 | 2.6 | 3.2 | n.a. | n.a. |Cyclically-adjusted balance (% of GDP) | SP Dec 20061 7 | -3.5 | -5.3 | -2.3 | -1.8 | -1.2 | -0.4 | 0.3 |COM Nov 2006 | -3.4 | -4.1 | -2.4 | -2.5 | n.a. | n.a. | n.a. |SP Dec 20051 | -3.5 | -2.9 | -2.3 | -1.7 | -1.2 | n.a. | n.a. |Structural balance2 (% of GDP) | SP Dec 20061 3 | -4.0 | -3.9 | -2.5 | -1.9 | -1.2 | -0.4 | 0.3 |COM Nov 20064 | -3.9 | -3.6 | -2.5 | -2.6 | n.a. | n.a. | n.a. |SP Dec 20051 | -4.1 | -3.2 | -2.3 | -1.7 | -1.2 | n.a. | n.a. |Government gross debt (% of GDP) | SP Dec 2006 | 106.6 | 107.6 | 106.9 | 105.4 | 103.5 | 100.7 | 97.8 |COM Nov 2006 | 106.6 | 107.2 | 105.9 | 105.7 | n.a. | n.a. | n.a. |SP Dec 2005 | 108.5 | 108.0 | 106.1 | 104.4 | 101.7 | n.a. | n.a. |Notes: 1 Commission services calculations on the basis of the information in the programme 2 Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures 3 One-off and other temporary measures taken from the programme (0.5% of GDP in 2005, 0.1% in 2007 and 2008; deficit-reducing. In 2006, 1.4% of GDP deficit-increasing) 4 One-off and other temporary measures taken from the Commission services’ autumn 2006 forecast (0.5% of GDP in 2005, 0.1% in 2007 and 2008; deficit-reducing. In 2006, 0.5% of GDP deficit-increasing). 5 Based on estimated potential growth of 1.2%, 1.3%, 1.4% and 1.5% respectively in the period 2005-2008. 6 Data on the primary balance in the programme and in the Commission services' forecasts are not directly comparable because of a different treatment of FISIM. Data in the programme follow the definitions required by the code of conduct. To be comparable with data in the programme, Commission data on the primary balance need to be adjusted by around +0.2% of GDP. 7 The budgetary data in the programme for 2006 have been amended to include 0.9% of GDP of expenditure due to the cancellation by the State of the railway company's debt related to the high-speed project, announced in the stability programme and approved with the final amendment to the 2007 Budget Law. Source: Stability programme (SP); Commission services’ autumn 2006 economic forecasts (COM); Commission services’ calculations |[1] OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). All the documents referred to in this text can be found at the following website:http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm[2] Communication from the Commission to the Spring European Council, “Implementing the renewed Lisbon strategy for growth and jobs - A year of delivery” - COM(2006) 816, 12.12.2006.[3] Communication from the Commission to the Council and the European Parliament, “The long-term sustainability of public finances in the EU” - COM(2006) 574, 12.10.2006 - and European Commission, Directorate-General for Economic and Financial Affairs (2006), “The long-term sustainability of public finances in the European Union”, European Economy No 4/2006.[4] “Specifications on the implementation of the Stability and Growth Pact and guidelines on the format and content of stability and convergence programmes”, endorsed by the ECOFIN Council of 11 October 2005.[5] OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm[6] The tables in the 2006 Stability Programme do not incorporate the 0.9% of GDP higher one-off government expenditure due to the cancellation of the railway company's debt, which the programme text refers to. This additional expenditure brings the targeted deficit for 2006 to 5.7% of GDP, from the 4.8% reported in the tables, and also affects other budgetary data.[7] Following a Eurostat decision of 23 May 2005 (see Eurostat News Release No 65/2005), according to which this railway company's debt was already booked as government liability, the government decision has no impact on the debt.[8] In particular, there is no breakdown of the budget consistent with the deficit targets for the years 2008-2011.


66/484/EEC: Commission Recommendation of 18 July 1966 to the Member States on the promotion of vocational guidance


title: Recommendation for a Council opinion in accordance with the third paragraph of Article 5 of Council Regulation (EC) No 1466/97 of 7 July 1997 on the updated stability programme of Finland, 2001-2004

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title: Council Recommendation of 9 July 2013 on the National Reform Programme 2013 of Poland and delivering a Council opinion on the Convergence Programme of Poland, 2012-2016

text:
               30.7.2013

               EN

               Official Journal of the European Union

               C 217/63

      COUNCIL RECOMMENDATION

   of 9 July 2013
   on the National Reform Programme 2013 of Poland and delivering a Council opinion on the Convergence Programme of Poland, 2012-2016
   2013/C 217/16
   THE COUNCIL OF THE EUROPEAN UNION,
   Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
   Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 9(2) thereof,
   Having regard to the recommendation of the European Commission,
   Having regard to the conclusions of the European Council,
   Having regard to the opinion of the Employment Committee,
   Having regard to the opinion of the Economic and Financial Committee,
   Having regard to the opinion of the Social Protection Committee,
   Having regard to the opinion of the Economic Policy Committee,
   Whereas:

               (1)

               On 26 March 2010, the European Council agreed to the Commission’s proposal to launch a new strategy for jobs and growth, Europe 2020, based on enhanced coordination of economic policies, which focuses on the key areas where action is needed to boost Europe’s potential for sustainable growth and competitiveness.

               (2)

               On 13 July 2010, the Council adopted a recommendation on the broad guidelines for the economic policies of the Member States and the Union (2010 to 2014) and, on 21 October 2010, it adopted a decision on guidelines for the employment policies of the Member States (2), which together form the ‘integrated guidelines’. Member States were invited to take the integrated guidelines into account in their national economic and employment policies.

               (3)

               On 29 June 2012, the Member States’ Heads of State or Government decided on a Compact for Growth and Jobs, providing a coherent framework for action at national, EU and euro area levels using all possible levers, instruments and policies. They decided on action to be taken at the level of the Member States, in particular expressing full commitment to achieving the objectives of the Europe 2020 strategy and to implementing the country-specific recommendations.

               (4)

               On 10 July 2012, the Council adopted a Recommendation (3) on Poland’s National Reform Programme for 2012 and delivered its opinion on Poland’s Convergence Programme for 2012-2015.

               (5)

               On 28 November 2012, the Commission adopted the Annual Growth Survey, marking the start of the 2013 European Semester for economic policy coordination. Also on 28 November 2012, the Commission, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (4), adopted the Alert Mechanism Report, in which Poland was not identified as one of the Member States for which an in-depth review would be carried out.

               (6)

               The European Parliament has been duly involved in the European Semester, in accordance with Regulation (EC) No 1466/97, and, on 7 February 2013, adopted a resolution on employment and social aspects in the Annual Growth Survey 2013 and a resolution on the contribution to the Annual Growth Survey 2013.

               (7)

               On 14 March 2013, the European Council endorsed the priorities for ensuring financial stability, fiscal consolidation and action to foster growth. It underscored the need to pursue differentiated, growth-friendly fiscal consolidation, to restore normal lending conditions to the economy, to promote growth and competitiveness, to tackle unemployment and the social consequences of the crisis, and to modernise public administration.

               (8)

               On 30 April 2013, Poland submitted its 2013 National Reform Programme and its Convergence Programme for 2012-2016. In order to take account of their interlinkages, the two Programmes have been assessed at the same time.

               (9)

               Poland undertook considerable consolidation efforts in 2011-2012 in line with the Council recommendation. However, in view of a deteriorating global economic situation the deadline to correct the excessive deficit has been missed and more time is needed to correct it. Based on the assessment of the Convergence Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in the Programme is optimistic. In particular, private consumption and private investment is expected to increase more strongly than in the Commission services 2013 spring forecast, leading to an overall higher growth rate in 2013 (1,5 % against 1,1 %). The objective of the budgetary strategy outlined in the Convergence Programme is to bring the deficit to 3,5 % of GDP by 2013 (one year after the original 2012 EDP deadline) and reach the medium-term budgetary objective (MTO) by 2016. However, the Convergence Programme plans to bring the headline deficit below 3 % of GDP only by 2015. Given the overly optimistic growth forecast and revenue projections in the Convergence Programme, the Council considers that the fiscal effort envisaged by the authorities is not compatible with an actual correction of the excessive deficit by 2013 unless significant additional measures are taken to reinforce the effort for this year. The Convergence Programme is based on an optimistic scenario and not sufficiently supported by detailed measures in order to credibly ensure the correction of the deficit at the latest by 2014. Additional efforts are therefore required based on detailed measures for both 2013 and 2014.
               The authorities have not sufficiently exploited the pre-crisis growth environment to reform the structure of public spending to prioritise growth-enhancing items. The Convergence Programme confirms the previous MTO of –1 % of GDP, which reflects the objectives of the PACT. Based on the (recalculated) structural deficit, the MTO is not projected to be attained by 2016, as planned in the Convergence Programme, as the planned annual progress towards the MTO of 0,3 % of GDP (in structural terms) in 2015 and 0,7 % of GDP in 2016 is not sufficient. The growth rate of government expenditure, taking into account discretionary revenue measures, is in line with the benchmark of the Stability and Growth Pact over the entire programme period. Additional efforts as well as changes in the composition of the adjustment may be required also in the outer years of the Convergence Programme as the progress towards the MTO predominantly relies on sizeable cuts in public investment expenditure and is not sufficiently supported by detailed measures. General government debt is projected to remain below 60 % of GDP in Poland over the programme period. The national authorities forecast it to remain broadly constant at slightly above 55,5 % of GDP until 2014/2015 (and decrease in 2016), whereas the Commission, taking account of possible risks to the consolidation plans and debt decreasing items, expects an increase to around 59 % of GDP in 2014. Tax compliance remains a key issue in terms of combating tax evasion, which also requires reducing the administrative burden on taxpayers and improving the efficiency of tax administration. To ensure the success of the fiscal consolidation strategy, it is important that the fiscal consolidation is backed by comprehensive structural reforms.

               (10)

               A low share of growth-enhancing expenditure (education, research and innovation) and declining public investments hamper long-term growth prospects. The health sector in Poland is confronted with limitations in access to care and cost-inefficiencies, while healthcare spending is expected to grow considerably in the medium to long term because of an aging society, increasing the burden on public finances. The system could be improved by strengthening primary care and referral systems and exploiting the potential for cost-efficiency gains in hospital care.

               (11)

               The Government has not yet implemented a permanent expenditure rule consistent with the European System of Accounts (ESA). Furthermore, Poland has made only limited progress in medium-term planning and improving coordination among different levels of government when it comes to the budgetary process.

               (12)

               Youth unemployment is growing which is inter alia the result of the insufficient match between education outcomes and labour market needs. While implemented reforms of education systems are meant to address the job-skills mismatch, there is still a need to increase the availability of apprenticeships and work-based learning, to strengthen the cooperation between schools and employers and to improve the quality of teaching. The implementation of a Youth Guarantee, building upon current efforts, would contribute to supporting young people in obtaining employment. The proportion of adults participating in lifelong learning remains very low and the adoption of the lifelong learning strategy is pending.

               (13)

               With respect to early childcare, government efforts have concentrated on implementing the ‘Toddler programme’. As a result, the number of nurseries has almost doubled over the last two years, but is still low in relative terms and does not satisfy demand. Poland took only minor steps to address the extensive use of temporary employment. Poland has the third-highest share in the Union of involuntary fixed-term employment of all persons employed, in particular in the age group 15-24. While it is often argued that fixed-term contracts are an instrument for the unemployed to enter the labour market with a view to later moving into a permanent contract, this seems not to be the case for the majority of workers in Poland. Instead, the extensive use of such contracts appear to have a negative impact on the quality of human capital and on productivity, as temporary employees tend to have less access to vocational training. The wage penalty on fixed-term contracts is also relatively high, contributing to one of the highest in-work poverty rates in the Union. In addition, the use of revolving civil law contracts with significantly reduced social protection rights is widespread. According to the government report ‘Youth 2011’, over 50 % of young workers are employed on the basis of such contracts.

               (14)

               Poland faces low employment rates of older workers. Whereas possibilities for early retirement have been significantly reduced and general pension reform has been carried out, a special pension scheme for miners remains. In addition, the social security system for farmers (KRUS) creates incentives for small-scale farmers to remain in the agricultural sector mainly because individual farmers’ incomes are not accurately traced in the system. This results in hidden unemployment in rural areas, holding back productivity growth and keeping regional and sectoral labour mobility at bay.

               (15)

               Poland is among the Member States with the lowest level of R&D expenditure and is one of the worst performers in broader innovativeness indicators. The overall ratio of R&D expenditures to GDP in Poland, at 0,77 % in 2011, was among the lowest in the Union. In particular, private R&D expenditure is low (0,2 % of GDP in 2011). Polish enterprises have relied largely on technology absorption, i.e. application of already existing technologies through fixed capital investment. While this has been successful in ensuring productivity gains and economic growth, Poland now needs a transition towards a more indigenous innovation-based model. Reforms of the science and higher education system have initiated a major restructuring to induce science-industry cooperation. No evaluation of these reforms is available yet. A more holistic approach is needed to align efforts in research, innovation and industrial policy and ensuring that there are adequate instruments supporting the whole innovation cycle.

               (16)

               There are still very high potential gains from improvements in energy efficiency in all sectors of Poland’s economy, in particular by insulating buildings, and such gains could support growth. The domestic electricity grid is still congested, but plans are advancing to create more interconnection capacity to neighbouring markets. Competition in the gas market is still hampered by a number of factors, in particular the phasing out of regulated prices is still to be completed, the incumbent holding a market share of around 97 % in retail and whole sale markets, and 90 % of natural gas imports are from Russia.

               (17)

               Despite some progress, Poland’s underdeveloped transport infrastructure remains a major bottleneck to growth. Major road infrastructure projects have advanced, but railway investment projects are still largely delayed. Degraded rail infrastructure requires substantial, growing investment, since only 36 % of approximately 20 000 km of rail lines in operation are in good technical condition. Despite recent efforts, Poland still lags considerably behind other Member States when it comes to seizing the growth potential of information and communication technologies (ICT). Fixed broadband coverage is among the lowest in the Union, both at national level and for rural areas. Investment in water networks remains insufficient.

               (18)

               Poland’s public administration performs below the EU average. Key problems include transparency, the complexity of the tax system and compliance costs, the increasing average length of proceedings in civil and commercial cases, and long insolvency proceedings and low recovery rates. The use of eGovernment in the public administration also remains below the EU average. Poland initiated a reform to facilitate access to regulated professions that is behind the initially announced schedule.

               (19)

               In the context of the European Semester, the Commission has carried out a comprehensive analysis of Poland’s economic policy. It has assessed the National Reform Programme and the Convergence Programme. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Poland but also their compliance with EU rules and guidance, given the need to reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (7) below.

               (20)

               In the light of this assessment, the Council has examined the Convergence Programme, and its opinion (5) is reflected in particular in recommendation (1) below,

         HEREBY RECOMMENDS that Poland take action within the period 2013-2014 to:

               1.

               Reinforce and implement the budgetary strategy for the year 2013 and beyond, supported by sufficiently specified measures for both 2013 and 2014, to ensure a timely correction of the excessive deficit by 2014 in a sustainable manner and the achievement of the fiscal effort specified in the Council recommendations under the EDP. A durable correction of the fiscal imbalances requires credible implementation of ambitious structural reforms, which would increase the adjustment capacity and boost potential growth and employment. After the correction of the excessive deficit, pursue the structural adjustment effort that will enable Poland to reach the MTO by 2016. With a view to improving the quality of public finances, minimise cuts in growth-enhancing investment, and reassess expenditure policies improving the targeting of social policies and increasing the cost effectiveness and efficiency of spending in the healthcare sector. Improve tax compliance, in particular by increasing the efficiency of the tax administration.

               2.

               Ensure the enactment of a permanent expenditure rule in 2013 consistent with the rules of the ESA. Take measures to strengthen annual and medium-term budgetary coordination mechanisms among different levels of government.

               3.

               Strengthen efforts to reduce youth unemployment, for example through a Youth Guarantee, increase the availability of apprenticeships and work-based learning, strengthen cooperation between schools and employers and improve the quality of teaching. Adopt the proposed lifelong learning strategy. Combat in-work poverty and labour market segmentation including through a better transition from fixed-term to permanent employment and by reducing the excessive use of civil law contracts.

               4.

               Continue efforts to increase female labour market participation, in particular by investing in affordable quality childcare and pre-school education, and by ensuring stable funding and qualified staff. With a view to improving sectoral labour mobility, take permanent steps to reform the KRUS. Phase out the special pension system for miners with a view to integrating them into the general scheme. Underpin the general pension reform with measures promoting the employability of older workers to raise exit ages from the labour market.

               5.

               Take additional measures to ensure an innovation-friendly business environment by strengthening the links between research, innovation and industrial policy, by further developing revolving instruments and tax incentives and by better targeting existing instruments to the different stages of the innovation cycle.

               6.

               Renew and extend energy generation capacity and improve efficiency in the whole energy chain. Speed up and extend the development of the electricity grid, including cross-border interconnections, and eliminate obstacles in electricity cross-border exchange. Reinforce competition in the gas sector by phasing out regulated prices. Strengthen the role and resources of the railway market regulator and ensure effective implementation of railway investment projects without further delay. Accelerate efforts to increase broadband coverage. Improve waste and water management.

               7.

               Take further steps to improve the business environment by simplifying contract enforcement and requirements for construction permits and by reducing tax compliance costs. Adopt and implement the planned liberalisation of access to professional services.

      Done at Brussels, 9 July 2013.

            For the Council

            The President

         R. ŠADŽIUS

      (1)  OJ L 209, 2.8.1997, p. 1.

      (2)  Maintained for 2013 by Council Decision 2013/208/EU of 22 April 2013 on guidelines for the employment policies of the Member States (OJ L 118, 30.4.2013, p. 21).

      (3)  OJ C 219, 24.7.2012, p. 65.

      (4)  OJ L 306, 23.11.2011, p. 25.

      (5)  Under Article 9(2) of Regulation (EC) No 1466/97.


title: Recommendation of the European Central Bank of 4 February 2013 to the Council of the European Union on the external auditors of the Central Bank of Cyprus (ECB/2013/3)

text:
               9.2.2013

               EN

               Official Journal of the European Union

               C 37/1

         RECOMMENDATION OF THE EUROPEAN CENTRAL BANK
   of 4 February 2013
   to the Council of the European Union on the external auditors of the Central Bank of Cyprus
   (ECB/2013/3)
   2013/C 37/01
   THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK,
   Having regard to the Statute of the European System of Central Banks and of the European Central Bank, and in particular Article 27.1 thereof,
   Whereas:

               (1)

               The accounts of the European Central Bank (ECB) and national central banks are audited by independent external auditors recommended by the ECB’s Governing Council and approved by the Council of the European Union.

               (2)

               The mandate of the Central Bank of Cyprus’s current external auditors will end after the audit for the financial year 2012. It is therefore necessary to appoint external auditors from the financial year 2013.

               (3)

               The Central Bank of Cyprus has selected KPMG Limited as its external auditors for the financial years 2013 to 2017,

         HAS ADOPTED THIS RECOMMENDATION:
   It is recommended that KPMG Limited should be appointed as the external auditors of the Central Bank of Cyprus for the financial years 2013 to 2017.

      Done at Frankfurt am Main, 4 February 2013.

            The President of the ECB

         Mario DRAGHI