               EUROPEAN COMMISSION
            Brussels, 22.5.2017
            COM(2017) 514 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2017 National Reform Programme of Lithuaniaand delivering a Council opinion on the 2017 Stability Programme of Lithuania

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2017 National Reform Programme of Lithuania

                  and delivering a Council opinion on the 2017 Stability Programme of Lithuania

               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 5(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 16 November 2016, the Commission adopted the Annual Growth Survey,
                  4
                marking the start of the 2017 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 9-10 March 2017. On 16 November 2016, 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. On the same day, the Commission also adopted a recommendation for a Council Recommendation on the economic policy of the euro area. That Recommendation was endorsed by the European Council on 9-10 March 2017 and adopted by the Council on 21 March.
                  6

               (2)As a country whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Lithuania should ensure the full and timely implementation of the Recommendation for the euro area which is reflected in recommendation 2 below.

               (3)The 2017 country report for Lithuania
                  7
                was published on 22 February 2017. It assessed Lithuania’s progress in addressing the country-specific recommendations adopted by the Council on 12 July 2016, the follow-up given to the recommendations adopted in previous years and Lithuania’s progress towards its national Europe 2020 targets.

               (4)On 27 April 2017, Lithuania submitted its 2017 National Reform Programme and on 28 April 2017 Lithuania submitted its 2017 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (5)The relevant country-specific recommendations have been taken into account in the Member States' programmes for the European Structural and Investment Funds (ESI Funds) covering the 2014-2020 period. As foreseen in the legislation governing the ESI Funds,
                  8
                where it is necessary to support the implementation of relevant country-specific recommendations, the Commission may request a Member State to review and amend its relevant ESI Funds programmes. The Commission has provided further guidelines on the application of those rules.
                  9

               (6)Lithuania is currently under the preventive arm of the Stability and Growth Pact. In its 2017 Stability Programme, the government plans an improvement of the headline balance from a deficit of 0.4% of GDP in 2017 to a surplus of 1.3% of GDP in 2020. The medium-term budgetary objective — a deficit of 1 % of GDP in structural terms — is planned to be met with a margin throughout the programme period. The allowed adjustment path incorporates the systemic pension reform starting from 2016. In 2017 it reflects additional major structural labour market and pension reforms. According to the Stability Programme, the general government debt-to-GDP ratio is expected to fall from 40.2 % of GDP in 2016 to 33.8 % in 2020. The macroeconomic scenario underpinning these budgetary projections is plausible. At the same time, the measures needed to support the planned surplus targets from 2017 onwards have not been sufficiently specified.

               (7)In its 2017 Stability Programme, Lithuania requested to avail of the temporary deviation of 0.5% of GDP under the preventive arm pursuant to the "Commonly Agreed Position on Flexibility within the Stability and Growth Pact" endorsed by the ECOFIN Council in February 2016 in view of the planned implementation of major structural reforms with a positive impact on the long-term sustainability of public finances. Notably, this concerns raising the sustainability of the pension system through a reinforced indexation and a gradual increase of the pensionable service. However, the reforms stopped short at establishing an automatic link between retirement age and life expectancy. In addition, the reforms modernise labour relations by introducing new types of employment contracts, shorter periods of notice, lower severance allowances and more flexible working hours. The reforms also strengthen the coverage and adequacy of unemployment and social insurance benefits, expand the scope of active labour market policies and reduce the level of illegal and uninsured employment. The authorities estimate that the reforms have a positive impact on the sustainability of public finances by generating an average annual pension expenditure savings of up to 3.8% of GDP in the long run, while the labour market part of the reform may increase an average annual number of the employed by up to 10%, which seems to be a broadly plausible assumption. Therefore, if fully and timely implemented, this reform will have a positive impact on the sustainability of public finances. On this basis, Lithuania can currently be assessed as qualifying for the requested temporary deviation in 2017, provided that it adequately implements the agreed reforms, which will be monitored under the European Semester. However, in view of the need to ensure a continued respect of the minimum benchmark (i.e. a structural deficit of 1.5% of GDP) and taking into account the previously-granted allowance under the systemic pension reform clause (0.1% of GDP), Lithuania can currently be assessed as qualifying for an additional temporary deviation of 0.4 % of GDP in 2017, which is slightly below the requested 0.5% of GDP.

               (8)On 12 July 2016, for 2017 the Council recommended Lithuania to ensure that the deviation from the medium-term budgetary objective is limited to the allowance linked to the systemic pension reform.
                  10
                Taking into account the allowances linked to the pension reform granted for 2016 and the temporary deviation linked to the implementation of structural reforms granted for 2017, the structural balance would be allowed to deteriorate by 1.3% of GDP in 2017. Based on the Commission 2017 spring forecast Lithuania is projected to comply with this requirement in 2017. In 2018, Lithuania should achieve its medium-term objective, taking into account the allowances related to the implementation of the systemic pension reform granted for 2016 and the structural reform granted for 2017, as temporary deviations are carried forward for a period of three years. Based on the Commission 2017 spring forecast, this is consistent with a maximum nominal growth rate of net primary government expenditure of 6.4% in 2018, corresponding to a deterioration in the structural balance of -0.6% of GDP. Under unchanged policies, Lithuania is projected to comply with this requirement in 2018. Overall, the Council is of the opinion that Lithuania is projected to comply with the provisions of the Stability and Growth Pact in 2017 and 2018.

               (9)Following the latest increase in the non-taxable minimum wage, the tax burden on low-income earners has been substantially reduced over recent years and is now close to the EU average. At the same time, compensating tax increases have been limited and consequently, tax revenue as a share of GDP remains among the lowest in EU, limiting Lithuania’s ability to address its social challenges. The low tax revenue is due to the relatively large share of the shadow economy and relatively low revenue from environmental and capital taxation.

               (10)Although Lithuania has made progress in recent years to improve VAT collection, its VAT gap is among the highest in the EU. Underreporting of wages adds to the problem of low tax collection. Increasing tax compliance would raise budget revenues and improve the fairness of the tax system and the efficiency of the economy.

               (11)The rise in the old-age dependency ratio is set to intensify and under the existing pension rules expenditure on pensions as a share of GDP is projected to rise by some 50 % by the end of the 2030s. Linking the pension benefits with life expectancy is essential to limit the strain the pension expenditure will put on public finances.

               (12)Lithuania has postponed the entry into force of the new Labour Code and other legislation on the new social model. This gives it an opportunity to ensure a good balance between flexibility and security in its labour relations. The high proportion of people at risk of poverty or social exclusion, together with growing income inequality, remain major challenges for Lithuania. The ratio of the incomes of the richest 20 % of households to that of the poorest 20 % rose from 5.3 in 2012 to 7.5 in 2015 and is the second highest in the EU. This is detrimental to economic growth, macroeconomic stability and development of an inclusive society. At the moment, the social safety net does not effectively address this challenge due to low spending on social protection. Moreover, the difference in income inequality before and after taxes and social transfers is amongst the smallest in the EU. However, the government has put the fight against poverty and social exclusion high on its agenda. The legislation on the new social model envisages increasing the adequacy and coverage of unemployment benefits, and there are some discussions on improving the adequacy of social assistance. These important decisions still have to be adopted and implemented. To tackle poverty among the elderly, in 2016 Lithuania added an indexation mechanism to its pension legislation which can be used to improve the adequacy of pensions.

               (13)It is important that Lithuania address its skills challenges and tackle the negative effects of its shrinking working age population. The proportion of pupils with insufficient basic skills remains high. Despite high tertiary education attainment rates, higher education is marred by poor quality standards and financial incentives that promote oversize and inefficiency rather than performance. Efforts should be pursued to ensure high quality teaching at all levels of education (including through reforming careers and working conditions). This is crucial to tackling underachievement and educational shortcomings and to ensuring quality in higher education (including by introducing performance-based funding and by consolidating higher education institutions). The persistence of low levels of participation in adult learning in Lithuania is hindering the effectiveness of labour market reforms and the development of a better skilled workforce. Lithuania has been focusing its efforts on increasing the offer and relevance of publicly provided learning opportunities, but so far this has not yielded tangible results. To achieve higher and sustainable participation rates in adult learning, Lithuania also needs to encourage individuals to take up learning and incentivise more employers to provide learning opportunities for their employees.

               (14)Unemployment among low-skilled and medium-skilled individuals is still above the EU average. Persons with disabilities have a high poverty rate, partly due to their weak labour market integration. Active labour market policy measures currently play a limited role in helping people re-enter the labour market in Lithuania. Lithuania has substantial scope to make its labour market more inclusive, including by offering more support measures to persons with disabilities. This implies, for instance, scaling up supported employment and the Vocational Rehabilitation Programme, and enhancing the availability of rehabilitation budgets. The recently adopted Law on Employment has the potential to improve the provision of active labour market policy measures.

               (15)Lithuania has made progress in recent years to improve the social dialogue. The social partners are actively involved in the discussions on the new labour code and the new social model, and the government has put in place the action plan to strengthen the social dialogue. It is aimed at capacity building of the social partners, promoting collective bargaining and improving the social dialogue at all levels.

               (16)In Lithuania, health outcomes continue to have a significant negative impact on the potential available workforce and labour productivity. Although efforts are being made to shift patients to more cost-effective types of healthcare, the health system’s performance continues to be hampered by high reliance on in-patient care and low expenditure on prevention and public health. Out-of-pocket payments are very high, in particular for pharmaceuticals.

               (17)Adverse demographic developments mean that growth will increasingly depend on labour productivity. Over the period 2000-2015 Lithuania had one of the highest labour productivity growth rates among EU Member States, but recently growth rates have slowed down. Lithuania’s public investment suffers from poor planning and linkage to the country’s strategic goals. Public R&D intensity increased to a value slightly above the EU average in 2015, while business R&D intensity still lags behind. The ‘Lithuanian Science and Innovation Policy Reform Guidelines’ adopted in 2016 aim to address the persisting challenges in research and innovation. They do so by calling for reform of institutional R&D funding; consolidation of research and higher education institutions, science valleys and technology parks; and improved policy coordination, monitoring and evaluation. Lithuania has made some progress in supporting alternative means of finance. It has helped to establish a number of venture capital and seed capital funds. The government has also recently passed a law on crowd-investing.

               (18)The number of bribery cases brought to courts has been on a steady rise in recent years, thus showing Lithuania’s stepped up efforts to fight corruption. However, in some important areas, like healthcare and public procurement the provisions against petty and high-level corruption are not always applied in practice. The health care sector suffers from the frequent practice of informal payments to doctors. There is insufficient transparency in public procurement, in particular at the municipal level. In addition, weak whistle-blower arrangements discourage tip-offs about potential irregularities in the public and private sectors. The government has set tackling the corruption in health care sector as a priority in its anti-corruption programme. Also, to reduce corruption risks and conflicts of interest in low-value procurement, the government has obliged contracting authorities to publish online information on initiated tenders, the successful bidders and the contracts awarded. However, continued monitoring is necessary to ensure implementation of these policies.

               (19)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Lithuania’s economic policy and published it in the 2017 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Lithuania in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Lithuania, but also their compliance with EU rules and guidance, given the need to strengthen the EU’s overall economic governance by providing EU-level input into future national decisions.

               (20)In the light of this assessment, the Council has examined the Stability Programme and its opinion
                  11
                is reflected in particular in recommendation 1 below,

               HEREBY RECOMMENDS that Lithuania take action in 2017 and 2018 to:

               1.Pursue its fiscal policy in line with the requirements of the preventive arm of the Stability and Growth Pact, which implies to remain at its medium term budgetary objective in 2018, taking into account the allowances linked to the implementation of the systemic pension reform and of the structural reforms for which a temporary deviation is granted. Improve tax compliance and broaden the tax base to sources that are less detrimental to growth. Take steps to address the medium term fiscal sustainability challenge related to pensions.

               2.Address skills shortages through effective active labour market policy measures and adult learning and improve educational outcomes by rewarding quality in teaching and in higher education. Improve the performance of the healthcare system by strengthening outpatient care, disease prevention and affordability. Improve the adequacy of the social safety net.

               3.Take measures to strengthen productivity by improving the efficiency of public investment and strengthening its linkage with the country's strategic objectives.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 1.

                     (2)
                  COM(2017) 514 final.

                     (3)
                  P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040.

                     (4)
                  COM(2016) 725 final.

                     (5)
                  COM(2016) 728 final.

                     (6)
                  2017/C92/01

                     (7)
                  SWD(2017) 80 final.

                     (8)
                  Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006, OJ L 347, 20.12.2013, p. 320.

                     (9)

                        COM(2014) 494 final.

                     (10)
                  Lithuania is allowed to deviate from its medium-term budgetary objective in 2017 and 2018 by allowance under the systemic pension reform clause granted for 2016, as temporary deviations are carried forward for a period of three years.

                     (11)
                  Under Article 5(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 13.5.2015
            COM(2015) 251 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the implementation of the broad guidelines for the economic policies of the Member States whose currency is the euro

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the implementation of the broad guidelines for the economic policies of the Member States whose currency is the euro

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Article 136 in conjunction with Article 121(2) 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 5(2) thereof,

               Having regard to 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
                  2
               , and in particular Article 6(1) thereof,

               Having regard to the recommendation of the European Commission,
                  3

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Economic and Financial Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)Sustaining and strengthening the development of the euro area requires continued policy efforts to support a balanced adjustment in the private and public sectors and increase the economy’s growth potential in the medium to long term. While economic recovery in the euro area is on-going, it is hampered by legacies of the recent economic and financial crises, including ongoing external rebalancing, high levels of public and private debt and related deleveraging pressures, persistent structural rigidities in national labour and product markets, high unemployment, and low confidence, and a persistent weakness in investment. So far, implementation of the reforms set out in the country-specific recommendations has not been sufficiently ambitious.

               (2)The euro area is more than just the sum of its members. The euro area economies are closely interrelated, underscoring the need for stronger coordination of fiscal, financial and structural policies. The policy stance at the euro area level should promote growth, while at the same time ensuring that the progress made in rebalancing is not jeopardised. Euro area Member States have a specific responsibility for effective implementation of the governance framework, which has been significantly strengthened in recent years. This calls for increased peer pressure to support national reform implementation and fiscal prudence. It also calls for greater assessment of national reforms from a euro area perspective, internalising potential spillovers and stimulating policies of particular importance for a well-functioning Economic and Monetary Union.

               (3)The implementation of ambitious structural reforms that modernise economies and boost competitiveness and growth potential is not yet sufficient in the euro area.  The extent of imbalances prior to the crisis, the position in the business cycle, and the fiscal space available vary significantly across Member States. Despite improvements in labour markets and some progress with reforms to improve the resilience of labour markets, unemployment rates remain high and long-term unemployment risks becoming entrenched, further weakening the social situation in the most vulnerable countries. External rebalancing is ongoing, but progress has been asymmetric and there has not been an adjustment of large current account surpluses. Ambitious structural reforms of labour and product markets would facilitate the necessary economic adjustment within the euro area and boost growth in the countries that implement them. By increasing employment and lowering prices for consumers, reforms also contribute to greater social inclusion. If carried out jointly across Member States, structural reforms offer benefits to the euro area as a whole through positive spillover effects through trade and financial channels. This would also encourage the appropriate policy choices in the rest of the euro area. The thematic discussions of the Eurogroup can help this process via the assessment and benchmarking of reforms and their impact on the euro area as a whole. This can be done through learning from best practice, agreement on common principles for good reforms and peer pressure. In view of the adjustment process at national level and therefore the functioning of the euro area, regular monitoring of progress with reforms in Member States which are experiencing excessive imbalances and imbalances requiring decisive action is particularly important.

               (4)One of the key policy challenges facing the euro area is to reduce government debt by pursuing fiscal responsibility. Thanks to the consolidation efforts of the past years, the euro area fiscal situation has improved but the coordination of fiscal policies remains sub-optimal. A number of euro area Member States still need to continue with fiscal adjustment to bring down very high levels of debt. Other countries have more room for manoeuvre and could use it to encourage domestic demand, with a particular emphasis on investment; this would support domestic growth and the euro area as a whole. The flexibility embedded in the Stability and Growth Pact rules allows Member States to facilitate structural reforms and investment, while following the commonly agreed rules. Fiscal strategies are not yet sufficiently growth-friendly. On the revenue side, despite increased coordination in the Eurogroup, there is further scope for improving the efficiency of tax systems and reducing the tax wedge on labour. On the expenditure side, more focus is needed on public investment, backed by sound cost-benefit analysis, and other public expenditure with strong and positive growth effects. Spending reviews have emphasised the need for efficiency gains in public administration. Well-functioning national fiscal frameworks will support this process.

               (5)Financial market conditions in the euro area have been improving, but lending to the private sector remains subdued and financial markets remain fragmented. This is holding back investment in the euro area. As a result, a wide investment gap has opened, while investment needs exist both in terms of tangible and intangible investments. The EU Investment Plan offers opportunities to mobilise investment and channel it into productive uses. However, the impact of the Investment Plan and the ECB’s expanded asset purchase programme will be larger when accompanied by measures in the broader financial sector to restore credit flows, deepen capital markets and boost the long-term financing of the economy. Completion of the banking union is underway and will be supported by the application of the single rulebook and a consistent regulatory approach. Better integrated and more efficient capital markets would mobilise further funding for investment, make the European economy less dependent on banks, and make its financial structures more balanced and more stable.

               (6)Notwithstanding the recent achievements in strengthening the EMU architecture, current challenges call for progress in completing its design. Further developing EMU will require a step by step approach combining discipline with solidarity. The President of the Commission, together with the Presidents of the European Council, the European Parliament, the European Central Bank, and the Eurogroup, will prepare the next steps on better economic governance in the euro area,

               HEREBY RECOMMENDS that euro area Member States take action within the Eurogroup, in the period 2015-2016 to:

               1.Use peer pressure to promote structural reforms that facilitate the correction of large internal and external debts and support investment. Regularly assess the delivery of reforms in those Member States with serious imbalances.  Continue the regular thematic assessment of structural reforms. By spring 2016, take decisions on the follow-up to the coordination exercise on reducing the high tax wedge on labour and on reforming services markets.

               2.Coordinate fiscal policies to ensure that the aggregate euro area fiscal stance is in line with sustainability risks and cyclical conditions. By spring 2016, hold thematic discussions on improvements in the quality and sustainability of public finances, focussing in particular on the prioritisation of tangible and intangible investment at national and EU levels, and on making tax systems more growth friendly. Monitor the effective functioning of the recently strengthened national fiscal frameworks.

               3.Ensure the timely finalisation of the follow up of the Comprehensive Assessment by the European Central Bank, implementation of the Bank Recovery and Resolution Directive, completion of the ratification of the Intergovernmental Agreement on the Single Resolution Fund and make the Fund fully operational as from January 2016. Promote measures to deepen market-based finance, to improve access to finance for SMEs and to develop alternative sources of finance. Encourage further reforms of national insolvency frameworks.

               4.Take forward work on deepening Economic and Monetary Union, and contribute to the improvement of the economic surveillance framework in the context of the report on the next steps on better economic governance in the euro area, prepared by President Juncker in close cooperation with Presidents Tusk, Schulz, Draghi and Dijsselbloem and its follow-up.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 1.

                     (2)
                  OJ L 306, 23.11.2011, p. 25.

                     (3)
                  COM(2015) 251.


               EUROPEAN COMMISSION
            Brussels, 13.5.2015
            COM(2015) 254 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2015 National Reform Programme of the Czech Republicand delivering a Council opinion on the 2015 Convergence Programme of the Czech Republic

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2015 National Reform Programme of the Czech Republic

                  and delivering a Council opinion on the 2015 Convergence Programme of the Czech Republic

               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. The strategy 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, 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 it adopted a decision on guidelines for the employment policies of the Member States. Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

               (3)On 8 July 2014, the Council adopted a Recommendation on the Czech Republic’s National Reform Programme for 2014 and delivered its opinion on the Czech Republic’s updated Convergence Programme for 2014.

               (4)On 28 November 2014, the Commission adopted the Annual Growth Survey
                  4
               , marking the start of the 2015 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 the Czech Republic as one of the Member States for which an in-depth review would be carried out.

               (5)On 18 December 2014, the European Council endorsed the priorities for boosting investment, accelerating structural reforms and pursuing responsible growth-friendly fiscal consolidation.

               (6)On 26 February 2015, the Commission published its 2015 country report for the Czech Republic
                  6
               . This assessed the Czech Republic’s progress in addressing the country-specific recommendations adopted on 8 July 2014.

               (7)On 30 April 2015, the Czech Republic submitted its 2015 National Reform Programme and its 2015 Convergence Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (8)The Czech Republic is currently in the preventive arm of the Stability and Growth Pact. In its 2015 Convergence Programme, the government plans to gradually improve the headline deficit to 1.9% of GDP in 2015 and further to 0.6% of GDP in 2018. The government sets out its intention to meet the medium-term objective – a structural deficit of 1% of GDP – in 2018, but according to the recalculated structural balance
                  7
                it is expected to be met by 2016. According to the Convergence Programme, the government debt-to-GDP ratio is expected to reach almost 41% in 2015 and to gradually decline to 40.2% in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible and the measures to support the planned deficit targets from 2016 onwards are sufficiently specified. However, there is a risk that the impact of the planned revenue measures may be lower than estimated. Based on the Commission's 2015 spring forecast, the expenditure benchmark is expected to be complied with in 2015. In 2016, some deviation is expected as net expenditure growth exceeds the benchmark by 0.3% of GDP. Therefore, further measures will be needed in 2016. Based on its assessment of the Convergence Programme and taking to account the Commission's 2015 spring forecast, the Council is of the opinion that Czech Republic is expected to broadly comply with the provisions of the Stability and Growth Pact. The main elements of the current fiscal framework are in place. However the scope of medium-term budgetary planning and of the numerical fiscal rule is limited, and enforcement has been weak. A draft reform package has been modified and delayed several times and its adoption is currently planned during 2015. The Czech Republic still faces challenges with respect to long-term fiscal sustainability, largely due to projected increases in pension and healthcare expenditure. There has been some improvement in the outlook for the pension system as a result of more favourable demographic projections. The Czech Government plans to gradually increase the statutory retirement age, but the change programmed for the medium term is too slow. Changes to the current system of pension indexation are currently being discussed but no measures have yet been adopted. Although some measures have been taken to improve the cost efficiency and governance of the healthcare sector, limited progress has been made in this area. Indicators used to measure the performance of the hospital sector show that medical treatment is not always delivered in a cost-efficient way, while the allocation of resources is hampered by ongoing difficulties in rolling out a reimbursement system for costs incurred by hospitals. There are also signs that general practitioners are not adequately fulfilling their role as gate-keepers. Public procurement in the healthcare sector suffers from a high incidence of irregularities, suggesting insufficient guidance and supervision.

               (9)The main challenges in the area of taxation are to reduce tax evasion and to make tax collection less costly and less time-consuming, both for taxpayers and for the authorities. The Czech Republic has identified tax compliance and the fight against tax evasion as priorities, and is taking a number of steps in these areas. Several measures were introduced in 2015, relating to both direct and indirect taxes, and further measures are planned for 2016. The cost of compliance is still, however, too high. Standardising the tax bases for personal income tax, social security and health contributions would help to simplify the tax system, but this change has not been brought in, and there are currently no plans to tackle this issue. Work on simplifying tax returns and increasing the use of pre-filled forms is not being carried out in a systematic way. Rather than simplifying the VAT system, the Czech Republic introduced a third VAT rate in 2014. Limited progress has been made in reducing the discrepancies in the tax treatment of employees and the self-employed. Tax revenue in the Czech Republic still relies heavily on the taxation of labour, and low-income workers, particularly those without children, face a relatively high labour tax burden. Measures entering into force in 2015 somewhat reduce labour taxation for specific groups, but will have a limited impact overall. Property and environmental taxes (except fuel) remain low, indicating potential scope for shifting tax away from labour.

               (10)Limited progress was made in 2014 on accelerating the reform of regulated professions but the intermediary national action plan adopted in April 2015 contains a number of concrete measures and actions designed to improve the regulatory framework and to remove unjustified and disproportionate requirements.

               (11)Efforts made in recent years to tackle the problem of corruption have met with serious delays. The most recent anti-corruption action plan covered a number of priority areas. It included Acts on financial control, public prosecution, the financing of political parties, the protection of whistle-blowers, a new policy on the management of state-owned companies and an amendment to the Act on free access to information. Nonetheless, it appears that little is being done to bring about the adoption of these Acts. The adoption and implementation of the Civil Service Act and of related measures has seen the Czech Republic start to address problems relating to the efficiency and stability of its public administration. Both the administrative and regulatory barriers related to investment planning, and the lack of transparency and long duration of the procedures for obtaining building and land-use permits hold back public investment. Public procurement has been the focus of a number of initiatives in recent years but concerns about transparency still remain. In particular, public contracts are still not published in a centralised register. The efficiency of public procurement procedures is hampered by the inadequate provision of guidance and training to tendering institutions. Supervision of the system remains weak.

               (12)The overall level of employment is currently high, but certain disadvantaged groups remain underrepresented in the labour market. These include parents with young children, low-skilled workers, people with disabilities and Roma. Some steps have been taken towards strengthening the efficiency and effectiveness of public employment services. The level of employment among young people is increasing, and public employment services try to target their services towards young people in particular. The lack of affordable and quality childcare services and the limited use of flexible working-time arrangements make it difficult for women with children to participate in the labour market. Some steps have been taken towards increasing the availability of childcare but policies supporting public childcare for the youngest children are still insufficient.

               (13)The Czech Republic’s educational outcomes have improved in recent years but structural challenges still remain. Participation in tertiary education has increased rapidly, but concerns have emerged in relation to the decline in skills of younger tertiary education graduates. It is hoped that the overdue higher education reform planned to be adopted in 2015 will introduce institutional accreditation, stronger internal quality assurance and greater use of profiling of students, and improve financing systems. More teachers need to be recruited into the compulsory education sector, but low salaries and a negative perception of the profession make it difficult to attract talented candidates. A new career system designed to improve both the recruitment of teachers and their professional development should be finalised in the first half of 2015, to be introduced in September 2016. Its overall impact will, however, largely depend on available funding. A comprehensive approach to evaluating and supporting low-performing schools and pupils is, meanwhile, still lacking. The introduction of such an approach could help improve efficiency and equality in the education sector. Limited progress has been made in making education more inclusive, despite the government’s adoption of a comprehensive strategy for education. Young people from low socioeconomic backgrounds, including Roma, are shown to be less successful in education and on the labour market.

               (14)In the context of the European Semester, the Commission has carried out a comprehensive analysis of the Czech Republic’s economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to the Czech Republic in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in the Czech Republic but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the European Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 4 below.

               (15)In the light of this assessment, the Council has examined the Czech Republic’s Convergence Programme, and its opinion
                  8
                is reflected in particular in recommendation (1) below,

               HEREBY RECOMMENDS that the Czech Republic take action in 2015 and 2016 to:

               1.Achieve a fiscal adjustment of 0.5% of GDP in 2016. Further improve the cost-effectiveness and governance of the healthcare sector.

               2.Fight tax evasion, simplify the tax system and implement the anti-corruption plan. Take measures to increase the transparency and efficiency of public procurement, in particular by establishing a central register of public contracts and strengthening guidance and supervision.

               3.Reduce the high level of taxation levied on low-income earners, by shifting taxation to other areas. Further improve the availability of affordable childcare.

               4.Adopt the higher education reform. Ensure adequate training for teachers, support poorly performing schools and take measures to increase participation among disadvantaged children, including Roma.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 1.

                     (2)
                  COM(2015) 254

                     (3)
                  P8_TA(2015)0067, P8_TA(2015)0068, P8_TA(2015)0069.

                     (4)
                  COM(2014) 902.

                     (5)
                  COM(2014) 904.

                     (6)
                  SWD(2015) 23 final.

                     (7)
                  The structural balance as recalculated by the Commission based on the information in the Convergence Programme, following the commonly agreed methodology.

                     (8)
                  Under Article 9(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 13.5.2015
            COM(2015) 253 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2015 National Reform Programme of Bulgariaand delivering a Council opinion on the 2015 Convergence Programme of Bulgaria

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2015 National Reform Programme of Bulgaria

                  and delivering a Council opinion on the 2015 Convergence Programme of Bulgaria

               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 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
                  2
               , and in particular Article 6(1) thereof,

               Having regard to the recommendation of the European Commission
                  3
               ,

               Having regard to the resolutions of the European Parliament
                  4
               ,

               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. The strategy 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, 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 it adopted a decision on guidelines for the employment policies of the Member States. Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

               (3)On 8 July 2014, the Council adopted a recommendation on Bulgaria’s National Reform Programme for 2014 and delivered its opinion on Bulgaria’s updated Convergence Programme for 2014.

               (4)On 28 November 2014, the Commission adopted the Annual Growth Survey
                  5
               , marking the start of the 2015 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
                  6
               , in which it identified Bulgaria as one of the Member States for which an in-depth review would be carried out.

               (5)On 18 December 2014, the European Council endorsed the priorities for boosting investment, accelerating structural reforms and pursuing responsible growth-friendly fiscal consolidation.

               (6)On 26 February 2015, the Commission published its 2015 country report for Bulgaria
                  7
               . This assessed Bulgaria's progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission’s analysis leads it to conclude that Bulgaria is experiencing macroeconomic imbalances. In particular, the financial sector turbulence in 2014 has raised concerns about banking practices in the domestically owned part, which may have significant implications for financial sector and overall macroeconomic stability. In addition, the still negative (albeit improving) external position, corporate overleveraging and weak labour market adjustment continue to pose macroeconomic risks and deserve close attention.

               (7)On 30 April 2015, Bulgaria submitted its 2015 National Reform Programme and its 2015 Convergence Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (8)Bulgaria is currently in the preventive arm of the Stability and Growth Pact. In its 2015 Convergence Programme, the government plans to keep the headline deficit at 2.8% of GDP in 2015. Thereafter, the government sets out its intention to gradually reduce the deficit so as to reach a level of 1.3% of GDP in 2018. According to the Convergence Programme, the government plans to meet the medium-term objective - a structural deficit of 1% of GDP – in 2018. The government debt-to-GDP ratio is expected to increase over the programme period, reaching almost 31% in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. However, measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, net expenditure growth is forecast to respect the benchmark in 2015. However, taking into account the deterioration of the structural balance (1.7% of GDP in 2014), there is a risk of some deviation from the requirement over the period 2014-2015. In 2016, there is a risk of a significant deviation, as net expenditure growth exceeds the benchmark by 0.9% of GDP. Hence, further measures will be needed for both years. Based on its assessment of the Convergence Programme and taking to account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Bulgaria will not comply with the provisions of the Stability and Growth Pact.

               (9)Tax compliance continues to be a major challenge in Bulgaria. There is a need for a comprehensive tax compliance strategy based on a thorough analysis of risks, systematic impact assessment of measures already taken and close coordination between the various tax collection agencies.

               (10)The Bulgarian healthcare system faces several major challenges, including poor health outcomes, low funding and serious inefficiencies in the use of resources. Life expectancy is considerably below the EU average and life expectancy at birth is among the lowest in the EU. The system continues to be based on an oversized hospital sector. Although funding of primary and outpatient care has slightly gained significance in nominal terms in recent years, it is still quite limited. The healthcare fund is contractually obliged to reimburse hospitals for treatments at predefined prices, which is incentivising hospitals to provide inadequately targeted medical care. A National Health Strategy was adopted in 2014 but it lacks a clear implementation plan.

               (11)Banking sector turmoil in the summer of 2014 revealed institutional and supervisory weaknesses. The supervisory body’s failure to detect significant problems in the fourth largest bank in the country, Corporate Commercial Bank (KTB), points to shortcomings in financial sector supervisory practices and oversight of concentration risk. This has undermined the credibility of banking supervision, in turn also raising doubts as to the health of other parts of the financial sector. The liquidity crisis over the summer of 2014 revealed a capital shortfall and led to KTB’s banking licence being revoked. The guaranteed deposits, amounting to some 5 % of GDP, were paid out only after a significant delay.

               (12)Active labour market policies are insufficiently developed in terms both of coverage and of targeting. Fragmentation of agencies represents a major challenge in delivering benefits and services to the unemployed and the inactive. Coordination between employment offices and the social assistance directorate is not geared to an efficient and integrated delivery of measures to help the most vulnerable. Bulgaria has a high proportion of young people neither in employment nor in education or training who are not in touch with the employment services and are thus outside the scope of standard labour market activation measures. Most of Bulgaria's unemployment is long-term, indicating that it is more structural than cyclical. Although the Bulgarian minimum wage is the lowest in the EU in nominal terms, it has increased substantially since 2011 and the Government plans further significant increases in the coming years. Such sharp discretionary shifts in the Government's wage-setting policy could be distortive for the labour market. Moreover, there are no clear guidelines for minimum-wage setting, so the system creates uncertainty as to whether the right balance will be struck between supporting employment and competitiveness on the one hand and safeguarding labour income on the other. Poverty and social exclusion remain a concern, as the country has one of the highest rates of material deprivation in the Union. The Roma population faces particularly high levels of poverty and social exclusion. The majority of young Roma are neither in employment nor in education or training. Pre-school and kindergarten enrolment of Roma children is low and almost a quarter of those aged 7–15 are not in the education system.

               (13)The low quality of the education and training systems and their limited relevance to the labour market hamper the supply of a suitably skilled labour force to the economy. The rate of adult participation in lifelong learning is one of the lowest in the EU. After years of delay, Bulgaria has still not adopted the reform of the School Education Act and implementation of the strategy on early school leaving is still at an early stage. The national vocational education and training strategy was amended and a new strategy on higher education was adopted in 2014. Implementation of these strategies should help to improve the education system, make it more relevant to the economy and promote innovation and job creation.

               (14)In spring 2015, the Government presented a proposal for reform of the pension system. The adequacy and sustainability of the pension system depend on reforms that incentivise and support longer working lives with fewer interruptions. In 2013, 1.2 million pensioners were found to be receiving pensions below the national poverty line. The key drivers behind low pension entitlements are early retirement and short contribution periods. The rapid ageing of Bulgarian society is likely to aggravate the situation in the future. It is therefore appropriate for Bulgaria to further contain growth in age-related expenditure to contribute to the long-term sustainability of public finances, including through implementation of robust pension reforms.

               (15)A key building block for an investor-friendly business environment is an independent, high-quality and efficient judicial system and effective mechanisms to fight corruption. Key challenges in this area include a lack of overall coordination, institutional shortcomings and a weak track-record on securing final convictions in court. These important policy areas will be covered by the Cooperation and Verification Mechanism.

               (16)The insolvency framework in Bulgaria has been ineffective, increasing uncertainty among market participants and reducing the country’s overall attractiveness to investors. Insolvencies take longer than in comparable countries and the claim recovery rate is low. The need for an efficient framework for handling insolvencies should also be seen in the light of the high indebtedness of non-financial corporations in Bulgaria and the role of such a framework in facilitating the deleveraging process.

               (17)Strategies for the reform of the public administration and the introduction of e-government were adopted in 2014. Their implementation will need a strong policy steer and coordination. Despite past efforts, the quality of public services remains low. The insufficient development of e-government limits efforts to increase transparency and reduce the administrative burden. A particular problem concerns public procurement procedures, which are hampered by a frequently changing legal framework and insufficient administrative capacity. The ex ante verification of tender procedures is often performed in a formalistic way. At the same time, procurement procedures are subject to overlapping ex post controls, sometimes resulting in divergent findings. The lack of transparency in the bidding process is also due to failure to complete the installation of the full range of e-procurement platforms. Irregularities in public procurement procedures have resulted in significant delays in implementing EU fund programmes in the past, have a negative impact on the business environment and hold back the much needed improvements in infrastructure. A multi-annual strategy adopted in July 2014 to address the key weaknesses in the public procurement system sets out a clear timetable for concrete steps to be taken in 2015 and 2016. This needs to be implemented.

               (18)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Bulgaria’s economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Bulgaria in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Bulgaria but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the European Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 5 below.

               (19)In the light of this assessment, the Council has examined Bulgaria’s Convergence Programme, and its opinion
                  8
                is reflected in particular in recommendation 1 below.

               (20)In the light of the Commission’s in-depth review and this assessment, the Council has examined the National Reform Programme and the Convergence Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations 1 to 3 and 5 below,

               HEREBY RECOMMENDS that Bulgaria take action in 2015 and 2016 to:

               1.Avoid a structural deterioration in public finances in 2015 and achieve an adjustment of 0.5 % of GDP in 2016. Take decisive measures to improve tax collection and address the shadow economy, based on a comprehensive risk analysis and evaluation of past measures. Improve the cost-effectiveness of the health care system, in particular, by reviewing the pricing of health care and strengthening outpatient and primary care.

               2.By December 2015, complete a system-wide independent asset-quality review and a bottom-up stress test of the banking sector, in close cooperation with European bodies. Perform a portfolio screening for the pension fund and insurance sectors. Review and fortify banking and non-banking financial sector supervision, including by strengthening the bank-resolution and deposit-guarantee frameworks. Improve corporate governance in financial intermediaries, including by tackling concentration risk and related-party exposures.

               3.Develop an integrated approach for groups at the margin of the labour market, in particular older workers and young people not in employment, education or training. In consultation with the social partners and in accordance with national practices, establish a transparent mechanism for setting the minimum wage and minimum social security contributions in the light of their impact on in-work poverty, job creation and competitiveness.

               4.Adopt the reform of the School Education Act, and increase the participation in education of disadvantaged children, in particular Roma, by improving access to good-quality early schooling.

               5.With a view to improving the investment climate, prepare a comprehensive reform of the insolvency framework drawing on international best practice and expertise, in particular to improve mechanisms for pre-insolvency and out-of-court restructuring.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 1.

                     (2)
                  OJ L 306, 23.11.2011, p. 25.

                     (3)
                  COM(2015) 253.

                     (4)
                  P8_TA(2015)0067, P8_TA(2015)0068, P8_TA(2015)0069.

                     (5)
                  COM (2014) 902

                     (6)
                  COM (2014) 904

                     (7)
                  SWD (2015) 22

                     (8)
                  Under Article 9(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 22.5.2017
            COM(2017) 524 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2017 National Reform Programme of Slovakiaand delivering a Council opinion on the 2017 Stability Programme of Slovakia

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2017 National Reform Programme of Slovakia

                  and delivering a Council opinion on the 2017 Stability Programme of Slovakia

               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 5(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 16 November 2016, the Commission adopted the Annual Growth Survey,
                  4
                marking the start of the 2017 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 9-10 March 2017. On 16 November 2016, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report,
                  5
                in which it did not identify Slovakia as one of the Member States for which an in-depth review would be carried out. On the same day, the Commission also adopted a recommendation for a Council Recommendation on the economic policy of the euro area. That Recommendation was endorsed by the European Council on 9-10 March 2017 and adopted by the Council on 21 March
                  6
               .

               (2)As a country whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Slovakia should ensure the full and timely implementation of the Recommendation for the euro area which is reflected in recommendations 1 to 2 below.

               (3)The 2017 country report for Slovakia
                  7
                was published on 22 February 2017. It assessed Slovakia’s progress in addressing the country-specific recommendations adopted by the Council on 12 July 2016, the follow-up given to the recommendations adopted in previous years and Slovakia’s progress towards its national Europe 2020 targets.

               (4)On 26 April 2017, Slovakia submitted its 2017 National Reform Programme and its 2017 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (5)The relevant country-specific recommendations have been taken into account in the Member States' programmes for the European Structural and Investment Funds (ESI Funds) covering the 2014-2020 period. As foreseen in the legislation governing the ESI Funds,
                  8
                where it is necessary to support the implementation of relevant country-specific recommendations, the Commission may request a Member State to review and amend its relevant ESI Funds programmes. The Commission has provided further guidelines on the application of those rules.
                  9

               (6)Slovakia is currently in the preventive arm of the Stability and Growth Pact. In its 2017 Stability Programme, the government plans to improve the headline deficit to 1.3% of GDP in 2017, and gradually further to 0% of GDP in 2019 and 2020. The medium-term budgetary objective — a structural deficit of 0.5% of GDP — is expected to be reached in 2018. According to the Stability Programme, the general government debt-to-GDP ratio is expected to gradually decline to 46 % by 2020. The macroeconomic scenario underpinning these budgetary projections is plausible.

               (7)On 12 July 2016, the Council recommended Slovakia to achieve an annual fiscal adjustment of 0.5% of GDP towards the medium-term budgetary objective in 2017. Based on the Commission spring 2017 forecast, there is a risk of some deviation from that requirement in 2017.

               (8)In 2018, in the light of its fiscal situation, Slovakia is expected to further adjust towards its medium-term budgetary objective of a structural deficit of 0.5% of GDP. According to the commonly agreed adjustment matrix under the Stability and Growth Pact, that adjustment translates into a requirement of a nominal growth rate of net primary government expenditure
                  10
                which does not exceed 2.9%. It would correspond to a structural adjustment of 0.5% of GDP. Under unchanged policies, there is a risk of significant deviation from that requirement over the period 2017-18 taken together. Overall, the Council is of the opinion that Slovakia needs to stand ready to take further measures to ensure compliance in 2017 and that further measures will be needed in 2018 to comply with the provisions of the Stability and Growth Pact. However, as foreseen in Regulation (EC) No 1466/97, the assessment of the budgetary plans and outcomes should take account of the Member State’s budgetary balance in the light of the cyclical conditions. As recalled in the Commission Communication accompanying these country-specific recommendations, the assessment of the 2018 Draft Budgetary Plan and subsequent assessment of 2018 budget outcomes will need to take due account of the goal to achieve a fiscal stance that contributes to both strengthening  the ongoing recovery and ensuring the sustainability of Slovakia’s public finances. In that context, the Commission intends to make use of the applicable margin of appreciation in the light of the cyclical situation of Slovakia.

               (9)Slovakia’s public finances still face risks in the long term. Healthcare expenditure continues to pose a risk to the long-term sustainability of public finances as increasing the cost-effectiveness of healthcare in Slovakia remains a challenge. Some steps have been taken to rationalise hospital care and lower costs, but concrete results are not yet visible. The 2016 spending review has identified potential savings. Nevertheless, progress on the ground in delivering a comprehensive healthcare and health spending reform has been to date protracted with the introduction of the diagnosis-related groups system for payments and the launching of e-health systems making only slow progress. Meanwhile, the deficit of the public pension system is projected to double in the long term, and the retirement age in Slovakia is among the lowest in the EU. Recent adjustments in the pension system have largely been ad hoc and short-term.

               (10)Tax evasion and tax avoidance have fallen, and efforts are being made to raise voluntary compliance. Improvements in tax collection have significantly reduced what was, in the past, a high VAT gap. Limiting VAT fraud appears to have also had a positive impact on the collection of corporate income tax. The financial administration adopts a focus on improving VAT compliance, especially through auditing. At the same time, non-audit activities to strengthen voluntary tax compliance are being explored.

               (11)Despite improvements in the labour market resulting from robust economic recovery and strong job creation, long-term unemployment remains a problem. The long-term unemployment rate continues to be one of the highest in the EU. It particularly affects marginalised Roma, low-skilled and young people. In addition, regional disparities persist — the unemployment rate in eastern Slovakia is still twice that in Bratislava. Adult participation in lifelong learning and second-chance education remains low. Despite measures encouraging low-wage earners to work and an ongoing public employment services reform, there are still difficulties in introducing individualised support to the long-term unemployed and to vulnerable groups due among others to a high caseload. The Slovak action plan on the integration of the long-term unemployed, largely financed by the European Social Fund, seeks to remedy this via a comprehensive approach to personalised services.  This will be achieved by providing specialised counselling, a new profiling system, cooperation with private employment agencies and the delivery of targeted training programmes designed by employers based on regional labour market needs. Roma participation in the Slovak labour market remains very low and progress in increasing their employment rate is slow. Low levels of education and skills and discrimination are factors contributing to their poor labour market outcomes. The low employment rate of women of childbearing age reflects the long parental leave (up to three years) rarely taken up by men, shortage of childcare facilities, especially for children under the age of three, and a low uptake of flexible working-time arrangements.

               (12)The education system is insufficiently geared to increasing Slovakia’s economic potential. Educational outcomes and the level of basic skills remain disappointing by international standards and have deteriorated further in 2012-15. Moreover, strong regional differences persist. Poor performance is primarily linked to a strong impact of the socioeconomic and ethnic background of students, to issues of equity, access and inclusiveness as well as the relatively low attractiveness of the teaching profession. Despite the 6 % salary increase for teachers in 2016 and further increases planned for 2017-2020, uncompetitive salary conditions and limited continuous teacher training are among the factors that make the profession still largely unattractive, especially to prospective young teachers and those residing in the more developed regions of the country. The recently adopted anti-segregation legislation, on the marginalised Roma community, has yet to be fully implemented to bring about positive change and increase their participation in inclusive mainstream education, with a special focus on early childhood education and care as well as pre-school education.

               (13)Slovakia’s public administration is being modernised, but corruption remains a challenge. Perceptions of corruption remain high and act as a major business impediment. Control mechanisms and the enforcement of anti-corruption rules still appear inadequate, and policy initiatives on whistleblowing and letterbox companies may not be enough to resolve the problem. In addition, public procurement practices fall short of best practices in many areas. Training measures are being developed to equip staff to run a more efficient procurement system. However, conflicts of interest, tailor-made tender specifications and excessive use of the lowest price award criteria remain a concern and result in limited quality-based competition. Weaknesses in public procurement are persistently reported as affecting the efficiency of public resources allocation.

               (14)A frequently changing legislative environment makes it difficult and costly for companies to comply with legislation, and legislative, regulatory processes and insolvency arrangements are often viewed as insufficiently business-friendly. An inter-ministerial working group for doing business, led by the State Secretary of the Ministry of Economy, was recently set up and is expected to present by June 2017 proposals for measures to improve the business environment. High regulatory barriers remain in the business services sector in Slovakia. Specific guidance per profession to address this issue was made in January 2017, in a Communication from the Commission on reform recommendations for regulation in professional services, as part of a package of measures to tackle barriers in services markets.
                  11

               (15)Improving the effectiveness, including the independence of the justice system, remains a challenge for Slovakia, although efforts are being made to address the shortcomings. However, concerns about the efficiency and independence of the judiciary remain. In addition, public administration is still burdened by inefficiency, insufficient capacity and fragmentation. The adoption of the strategy on Human Resource Management in October 2015 and the recent adoption of the Civil Service Act are positive steps forward. The new, politically independent Civil Service Council will supervise the implementation of the principles of the Act as well as the code of ethics for civil servants. The complex, opaque regulatory framework complicates relations between interested parties in the energy market. Recent changes in setting distribution tariffs indicate continued political and business influence. Independence of the energy price regulator is expected to decrease following the adoption of legislation that grants the government an exclusive right to name the regulator’s chair and grants the Ministries for the Economy and the Environment right to step into price-setting proceedings.

               (16)In the context of the European Semester the Commission has carried out a comprehensive analysis of Slovakia’s economic policy and published it in the 2017 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Slovakia in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovakia, but also their compliance with EU rules and guidance, given the need to strengthen the EU’s overall economic governance by providing EU-level input into future national decisions.

               (17)In the light of this assessment, the Council has examined the Stability Programme and its opinion
                  12
                is reflected in particular in recommendation 1 below,

               HEREBY RECOMMENDS that Slovakia take action in 2017 and 2018 to:

               1.Pursue its fiscal policy in line with the requirements of the preventive arm of the Stability and Growth Pact, which translates into a substantial fiscal effort for 2018. When taking policy action, consideration should be given to achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of Slovakia’s public finances. Improve the cost effectiveness of the healthcare system, including by implementing the value for money project.

               2.Improve activation measures for disadvantaged groups, including by implementing the action plan for the long-term unemployed and by providing individualised services and targeted training. Enhance employment opportunities for women, especially by extending affordable, quality childcare. Improve the quality of education and increase the participation of Roma in inclusive mainstream education.

               3.Improve competition and transparency in public procurement operations and step up the fight against corruption by stronger enforcement of existing legislation. Adopt and implement a comprehensive plan to lower administrative and regulatory barriers for businesses. Improve the effectiveness of the justice system, including a reduction in the length of civil and commercial cases.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 1.

                     (2)
                  COM(2017) 524 final.

                     (3)
                  P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040.

                     (4)
                  COM(2016) 725 final.

                     (5)
                  COM(2016) 728 final.

                     (6)
                  2017/C92/01.

                     (7)
                  SWD(2017) 90 final/2.

                     (8)
                  Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006, OJ L 347, 20.12.2013, p. 320.

                     (9)

                        COM(2014) 494 final.

                     (10)
                  Net government expenditure is comprised of total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a 4-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

                     (11)
                  COM(2016) 820 final, COM(2016) 821 final, COM(2016) 822 final, COM(2016) 823 final, COM(2016) 824 final.

                     (12)
                  Under Article 5(2) of Council Regulation (EC) No 1466/97.


               EUROPEAN COMMISSION
            Brussels, 13.5.2015
            COM(2015) 269 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2015 National Reform Programme of Austriaand delivering a Council opinion on the 2015 Stability Programme of Austria

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2015 National Reform Programme of Austria

                  and delivering a Council opinion on the 2015 Stability Programme of Austria

               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
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               , and in particular Article 5(2) thereof,

               Having regard to the recommendation of the European Commission
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               ,

               Having regard to the resolutions of the European Parliament
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               ,

               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. The strategy 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, 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 it adopted a decision on guidelines for the employment policies of the Member States. Together these form the ‘integrated guidelines’ which Member States were invited to take into account in their national economic and employment policies.

               (3)On 8 July 2014, the Council adopted a Recommendation on Austria’s National Reform Programme for 2014 and delivered its opinion on Austria’s updated Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU) No 473/2013
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               , the Commission presented its opinion on Austria’s draft budgetary plan for 2015
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               .

               (4)On 28 November 2014, the Commission adopted the Annual Growth Survey
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               , marking the start of the 2015 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
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               , in which it did not identify Austria as one of the Member States for which an in-depth review would be carried out.

               (5)On 18 December 2014, the European Council endorsed the priorities for boosting investment, accelerating structural reforms and pursuing responsible growth-friendly fiscal consolidation.

               (6)On 26 February 2015, the Commission published its 2015 country report for Austria
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               . This assessed Austria’s progress in addressing the country-specific recommendations adopted on 8 July 2014.

               (7)On 21 April 2015, Austria submitted its 2015 National Reform Programme and its 2015 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (8)Austria is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule over 2014-2016. In its 2015 Stability Programme, the government plans to improve the headline deficit gradually to 2.2% of GDP in 2015 and further to 0.5% of GDP in 2019. According to the Stability Programme, the medium-term objective – a structural deficit not higher than 0.45% of GDP – was reached in 2014, and the government plans to meet the medium-term objective throughout the programme period. However, the recalculated structural balance points to a departure from the medium-term objective as of 2015. The government debt-to-GDP ratio is expected to peak at 86.8% in 2015 and to gradually decline to 79.7% in 2019. The macroeconomic scenario underpinning the budgetary projections in the programme is plausible. However, measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission’s 2015 spring forecast, the structural balance is forecast to deviate by 0.4% of GDP from the medium-term objective in 2015. The deviation is set to become significant in 2016 in view of the projected 0.6% of GDP worsening of the structural balance compared to the 0.3% of GDP structural adjustment required in order to reach the medium-term objective. This would imply a deviation of about 0.9% of GDP from the requirement of the Stability and Growth Pact. Therefore, further measures will be needed. At the same time, according to the Stability Programme and the Commission 2015 spring forecast, gross debt will remain on a downward path in line with the transitional debt rule in 2015 and 2016. Based on its assessment of the Stability Programme and taking into account the Commission’s 2015 spring forecast, the Council is of the opinion that there is a risk that Austria will not comply with the provisions of the Stability and Growth Pact.

               (9)Relations between different levels of government remain complex and cause efficiency losses in crucial sectors of public administration. Austria remains one of the countries with the lowest level of subnational own taxes in percentage of GDP. Despite this low level of tax autonomy, subnational governments have several spending and administrative responsibilities. The high level of complexity and misalignment between revenue and spending responsibilities is not conducive to implementation of broad policy reforms.

               (10)The long-term fiscal sustainability of the Austrian pension system still suffers from structural weaknesses. Austria’s reforms to date do not seem sufficient to ensure the system’s long-term fiscal sustainability. First, the effective retirement age remains considerably below the statutory retirement age. Secondly, the statutory retirement age of women is well below that of men and will not be raised until 2024. Thirdly, the statutory retirement age is still not coupled to continuously rising life expectancy in Austria. Austria has taken some measures to increase the effective retirement age, which is now at 59.7 years (2014), but which remains below the EU average of 63.1 years (2013). Measures have been put in place to close avenues to early retirement and invalidity schemes, thereby extending working lives. Also, the penalty per year of early retirement and the period of pensionable service needed to qualify for such schemes have been increased. It remains unclear whether the expected positive budgetary effects of these measures will materialise.

               (11)Austrian healthcare spending ranks amongst the highest in the EU. The ongoing healthcare reform (2013-2016) is aimed at stabilising it as a proportion of GDP as of 2016. However, even if the reforms are successful, the fiscal sustainability and efficiency of the healthcare system still face structural challenges. Measures should be taken now with regard to the period after 2016. For example, more patients should be treated in multidisciplinary primary outpatient care settings and the average length of stay for inpatient treatment should be lowered further.

               (12)Ensuring the long-term availability of adequately qualified labour remains a challenge for Austria. At about 5.6 %, the unemployment rate is among the lowest in the EU, but the labour market potential of certain parts of the labour force is not fully tapped. Austria has taken some measures to extend working lives, better facilitate labour market participation by women and exploit more fully the potential of labour market participants of migrant background, including through improved recognition of their qualifications. However, recent reforms must be closely monitored and more measures are necessary to utilise fully the labour market potential of these groups.

               (13)On 13 March 2015, Austria presented a comprehensive tax reform aimed at remodulating tax brackets and rates of personal income tax, in particular by  reducing the entry rate for personal income tax from 36.5 % to 25 %. The tax relief is estimated to amount to EUR 4.9 billion, while EUR 300 million of additional expenditure is envisaged to support family policy and research activities. Under the proposal, the tax shift will be financed partly by fighting tax evasion, lowering public expenditure, increasing reduced VAT rates to 13 % in some areas and raising capital income tax from 25 % to 27.5 %. These reform plans are broadly in line with the Council’s 2014 recommendations. They are likely to increase incentives to work for individuals with low earnings potential and second earners, and to support disposable income. However, the reform should be implemented in a budgetneutral way.

               (14)The Austrian school system is characterised by a low number of early school leavers, well below the EU average. A strong and well-functioning system of vocational education and training provides a large pool of highly skilled workers. However, improving educational outcomes and hence the employability of young people with low socioeconomic status, in particular those from migrant backgrounds, remains a challenge. The evaluation of the implementation of a new secondary school system (Neue Mittelschule) has revealed weaknesses that still need to be addressed.

               (15)In the context of the European Semester, the Council has consistently recommended that Austria improve and promote competition in services, but the policy response has been limited so far. Legal form, shareholding and tariff requirements are still in place for several professions, creating regulatory barriers to market access and preventing professionals or professional companies from other Member States from setting up a business in Austria. In the context of the mutual evaluation exercise, Austria is reviewing its rules on access to professions and the performance of professional activities to assess whether they are proportionate and in the general interest. Compared with competition authorities in other Member States, the Federal Competition Authority is underresourced and this impedes more effective action.

               (16)The Austrian banking sector has remained resilient, but still faces a number of challenges both domestically and as regards vulnerable foreign exposures. Banking sector capitalisation continued to improve in 2014, but the profitability of Austrian banks remained under pressure. Five of the six largest Austrian credit institutions passed the ECB comprehensive assessment in 2014, the exception being Österreichische Volksbanken (ÖVAG). Austria made considerable progress in restructuring ÖVAG and Hypo Group Alpe Adria (HGAA). In February 2015, however, Heta Asset Resolution, the asset management company resulting from the split of HGAA, was found to have a capital shortfall of EUR 7.6 billion. As 100 % owner of Heta Asset Resolution, the government reacted by declaring a 15month moratorium on principal and interest payments for bonds owned by the company worth about EUR 10 billion, making use for the first time of the new tools under the Bank Recovery and Resolution Directive.

               (17)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Austria’s economic policy and published it in the 2015 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Austria in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Austria but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the European Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 4 below.

               (18)In the light of this assessment, the Council has examined Austria’s Stability Programme and its opinion
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                is reflected in particular in recommendation 1 below.

               (19)In the context of the European Semester, the Commission has also carried out an analysis of the economic policy of the euro area as a whole. On the basis of this analysis, the Council has issued specific recommendations for the Member States whose currency is the euro. Austria should also ensure the full and timely implementation of these recommendations,

               HEREBY RECOMMENDS that Austria take action in 2015 and 2016 to:

               1.Avoid deviating from the medium-term objective in 2015 and 2016. Ensure the budget neutrality of the tax reform aimed at reducing the tax burden on labour. Correct the misalignment between the financing and spending responsibilities of the different levels of government. Take measures to ensure the long-term sustainability of the pension system, including by earlier harmonisation of the statutory retirement age for men and women and link the statutory retirement age to life expectancy.

               2.Strengthen measures to increase the labour market participation of older workers and women, including by improving the provision of childcare and long-term care services. Take steps to improve the educational achievement of disadvantaged young people.

               3.Remove disproportionate barriers for service providers and impediments to setting up interdisciplinary companies.

               4.Address the potential vulnerabilities of the financial sector in terms of foreign exposure and insufficient asset quality.

               Done at Brussels,

                     For the Council

                     The President

                     (1)
                  OJ L 209, 2.8.1997, p. 1.

                     (2)
                  COM(2015) 269.

                     (3)
                  P8_TA(2015)0067, P8_TA(2015)0068, P8_TA(2015)0069.

                     (4)
                  OJ L 140, 27.5.2013, p. 11.

                     (5)
                  C(2014) 8811 final, 28.11.2014.

                     (6)
                  COM(2014) 902, 28.11.2014.

                     (7)
                  COM(2014) 904 final, 28.11.2014.

                     (8)
                  SWD(2015) 39 final, 26.2.2015.

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