Avis juridique important

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32004H0345

Commission Recommendation of 6 April 2004 on enforcement in the field of road safety (Text with EEA relevance)

Official Journal L 111 , 17/04/2004 P. 0075 - 0082

Commission Recommendationof 6 April 2004on enforcement in the field of road safety(Text with EEA relevance)(2004/345/EC)THE EUROPEAN COMMISSION,Having regard to the Treaty establishing the European Community, and in particular Article 211 thereof,Whereas:(1) Every year, approximately 40000 people are killed on the roads of the European Union. In the White Paper on European transport policy for 2010: time to decide(1), the Commission has set as its overall objective in terms of road safety that this number of fatalities needs to be halved by 2010.(2) The main causes of fatal accidents are speeding, driving under the influence of alcohol (hereafter referred to as drink-driving) and non-use of a seat belt. Cutting back these causes of deaths on the roads would achieve more than half of the intended 50 % reduction in fatalities.(3) It appears from research that enforcement is an important and effective way of preventing and reducing accidents, deaths and injuries.(4) The areas of speeding, drink-driving and non-use of seat belts are well documented and analysed by several research and study projects which provide information on what is best practice in enforcement of the traffic violations concerned.(5) An impact assessment study carried out concerning proposals in line with the measures provided in this Recommendation has found that the best enforcement practices that it seeks to introduce in all EU Member States have a considerable positive benefit-cost result.(6) These best practices are, with respect to speeding: the use of automated speed enforcement systems, followed up by procedures that have the necessary capacity to cope with a large number of violations; with respect to drink-driving: the application of random breath testing with alcohol screening devices and the use of evidential breath test devices; and with respect to seat belt use: intensive enforcement actions of a certain duration and which take place several times a year.(7) From the same scientific sources it appears that enforcement actions are only optimally effective if they are combined with actions to make the public aware of such enforcement actions and of the reasons why they are being held.(8) In order to make an effective planning of the measures to be taken following the Recommendation, Member States should establish a national enforcement plan which they should evaluate at regular intervals and if necessary adapt.(9) Because of the potential serious consequences of the violations dealt with by the Recommendation, Member States should apply as a general policy that violations are followed-up with effective, proportionate and dissuasive sanctions and not, as is currently sometimes the case, for instance with respect to non-use of seat belts, with only a warning.(10) Acts which aim at hindering or undermining enforcement should also be subject to effective sanctions.(11) In some cases, imposing a remedial measure can be appropriate, alongside or instead of a sanction; this can for example be the case where an individual has a structural drinking problem.(12) In order to enable effective sanctioning also in cases of serious and/or repeated violations that are committed in another Member State than the Member State where the car is registered, the Recommendation provides for a mechanism for cross-border enforcement.(13) With a view to identifying how effectively the Recommendation is being implemented, Member States should fill in a standard form with relevant information on the details of the enforcement and information actions they have carried out and, with a view to getting a better picture of the situation on drugs-driving, also relevant information in that area.. The information should be sent to the Commission and exchanged between the Member States. They should also provide information concerning cross-border enforcement actions in which they were involved.(14) The Commission should draw up a report every two years on the basis of this information provided by the Member States.(15) This Recommendation forms, together with the proposed Directive on minimum conditions for the implementation of Directive 2002/15/EC and Council Regulations (EEC) 3820/85 and (EEC) 3821/85 concerning social legislation relating to road transport activities(2), an enforcement package that aims at considerably improving road safety in the European Union and reducing the number of road fatalities and injuries.(16) This Recommendation aims at improving road safety and reducing the number of deaths and injuries on the roads in the European Union, through the implementation of national enforcement plans of the Member States which contain measures of best practice in enforcement and information of the public in the field of speeding, drink-driving and non-use of seat belts,HEREBY RECOMMENDS THAT MEMBER STATES:1. set up a national enforcement plan containing the measures they intend to take for the implementation of this Recommendation and provide the Commission with this national enforcement plan, which should contain the information described in chapter I of the standard form laid down in the annex;2. evaluate regularly and may adapt the national enforcement plan in accordance with relevant developments and provide the Commission with information concerning such adaptations;3. ensure that enhanced enforcement actions described in recommendations 4 to 7 will be combined with information of the public, which will be given in the form of publicity campaigns aiming at making the public conscious of the subject concerned, which shall be held for each of the three subjects of enhanced enforcement actions separately, and in the form of roadside information concerning concrete enforcement actions carried out on that road;4. ensure that automated speed enforcement equipment is used to check speeding on motorways, secondary roads and urban roads and ensure that the checks are carried out in such a way as to guarantee their effectiveness, namely that they are carried out regularly on stretches of roads where non-compliance occurs regularly and where this brings about an increased risk of accidents;5. provide for procedures assuring that all speeding violations registered by the automated speed enforcement equipment are followed-up;6. ensure the application of random breath testing with an alcohol screening device as a leading principle for surveillance of drink-driving and in such a way as to guarantee its effectiveness; with a view to this, in any event ensure that random breath testing is carried out regularly in places where and at times when non-compliance occurs regularly and where this brings about an increased risk of accidents, and ensure that officers carrying out random breath testing checks use evidential breath test devices whenever they suspect drink-driving;7. ensure that intensive enforcement actions concerning the non-use of seat belts with a duration of at least two weeks take place at least three times a year, in places where non-use occurs regularly and where there is an increased risk of accidents, and ensure that the use of seat belts is enforced in every individual case where non-use is observed and the car is being stopped; these enforcement actions may take place in combination with other traffic enforcement actions, such as those concerning speeding and drink-driving;8. apply as a general policy that violations detected in the course of the enhanced enforcement actions prescribed in recommendations 4 to 7 are followed-up by the infliction and execution of a sanction and/or a remedial measure and ensure that sanctions applicable to speeding, drink-driving and non-use of seat belts are effective, proportionate and dissuasive, that acts which aim at hindering or circumventing enforcement are subject to sanctions based on the same principles, that sanctions are more severe in the case of repeated serious violations committed by the same offender and that sanctions include the possibility of suspension or withdrawal of the driving licence and of immobilisation of the vehicle for serious violations;9. assist one another in order to give proper effect to this recommendation for which purpose every Member State will designate an enforcement coordination point and provide each other and the Commission with the coordinates of this coordination point; the enforcement coordination points will be used for exchange of best enforcement practices applied by Member States in the fields covered by this recommendation and will also carry out the task of communicating the information to the Commission as described in recommendation 12, and shall moreover send the same information to the coordination points of the other Member States;10. ensure that serious or repeated offences jeopardising road safety committed by a non-resident driver are reported to the competent authorities of the Member State in which the vehicle is registered, through the enforcement coordination point concerned mentioned in recommendation 9, which will keep record of such communications between Member States;11. ensure that the competent authorities of the Member State in which such serious or repeated offences have been recorded will ask the competent authorities of the Member State in which the vehicle is registered for appropriate measures to be taken with regard to the offender and ensure that in such cases, the latter Member State will inform the first Member State about the follow up it has given to the request, and ensure that the coordination points mentioned in recommendation 9 will be used for these contacts between Member States;12. communicate the information on the implementation of this recommendation and developments in the fields in question to the Commission every two years, in accordance with Chapter II of the standard form laid down in the Annex; the first year covered by this report from Member States will be the first full calendar year after the date of publication of this recommendation; the information will reach the Commission not later than 30 September following the date on which the two-year period covered by this report expires;13. examine, at the end of the first two-year period mentioned in recommendation 12, the effectiveness of existing national measures taken subsequent to this recommendation and inform the Commission of their findings.THE COMMISSION HEREWITH COMMITS ITSELF:1. to make the national enforcement plans mentioned in recommendation 1 available to all Member States;2. to make the information mentioned in recommendation 2 available to all Member States;3. to produce a report every two years on the implementation of this recommendation by Member States and developments in the fields in question, based on the information from Member States mentioned in recommendation 12 and forward the report to the Council and the European Parliament within 13 months after the end of the two-year period covered by the report;4. to evaluate, before the end of the third year after the date of publication of this Commission recommendation, on the basis of the information mentioned in recommendation 12, whether improvements have been achieved in road safety to the extent that, if such improvements continue, the objective of reducing the annual number of road deaths in the EU by 50 % in the year 2010 is likely to be achieved;5. to submit a proposal for a directive aiming at achieving the objective of 50 % reduction, in the event that the improvements described in the previous paragraph are not achieved.Done at Brussels, 6 April 2004.For the CommissionLoyola De PalacioVice-President(1) COM (2003)370 of 12.9.2001.(2) This proposal for a Directive (COM(2003) 628 final) is meant to replace Directive 88/599/EEC on standard checking procedures for the implementation of Regulation (EEC) No 3820/85 on the harmonization of certain social legislation relating to road transport and Regulation (EEC) No 3821/85 on recording equipment in road transport.ANNEXSTANDARD FORM MENTIONED IN RECOMMENDATION 1I. The national enforcement planThe national enforcement plan mentioned in recommendation 1 will at least contain the following information:1. With respect to the planning of speed enforcement:(a) an inventory of all the stretches of road in the Member State where non-compliance with the maximum speed limit occurs regularly and where this brings about an increased risk of accidents; this inventory shall include the relevant national high-risk road sections as defined in the proposed Directive on the setting of national guidelines for road infrastructure safety and their implementation on the Trans-European Road Network, from the transposition date of that Directive;(b) a planning of the application of automated speed enforcement equipment to the stretches of road contained in this inventory containing the following information:- the dates on which the use of such equipment will start for different stretches included in the inventory in 1(a)- the date when all the stretches included in the inventory will be covered by such equipment.2. With respect to the planning of random breath testing:(a) a generic description of the places in the Member State where and the times when non-compliance with the maximum blood alcohol level occurs regularly and where this brings about an increased risk of accidents; in this description, due account will be taken of the specific risk of accidents that exists on rural roads;(b) a planning of the application of random breath testing in accordance with recommendation 5 in the places and at the times described in 1(a), above, containing the following information:- the frequency with which random breath testing will take place in the places and at the times described in 1(a) above,3. With respect to the planning of enforcement of restraint use:(a) a generic description of the places in the Member State where non-use occurs regularly and where there is an increased risk of accidents; in this respect, due account will be taken of towns and urban agglomerations;(b) a planning of the application of intensive enforcement actions in the places described in 1(a), above, in accordance with recommendation 6, containing the following information:- the places where intensive enforcement actions will be held, their duration and the number of times per year that they will be held.II. Information to be communicated following recommendation 12Member States shall provide the Commission with the following information, for each of the two reporting years separately(1):1. Information with respect to speed enforcement1.1. Automated speed enforcement equipment (recommendation 4)(a) number, kind and type of the equipment, applied to motorways, secondary roads and urban roads respectively, and whether it is meant to be visible for drivers or not;(b) number of hours, and periods during which checking was carried out with this equipment on the different types of road;(c) stretches of road where the equipment is applied.1.2. Violations(a) number of speeding violations registered by automated equipment;(b) number of violations referred to in (a) committed by drivers of foreign-registered cars;(c) total number of speeding violations registered (including those registered by other enforcement methods);(d) total number of violations meant in (c) committed by drivers of foreign-registered cars.1.3. Sanctions(a) number of sanctions imposed for speeding violations registered by automated equipment;(b) numbers of different types of such sanctions (e.g. fines, reduction/addition of points, suspension/withdrawal of driving licence, immobilisation of vehicle, etc.), and further details, such as amount of the fines, number of points, period of suspension, and for which violations;(c) the information mentioned in (a) and (b) on such sanctions imposed on drivers of foreign-registered cars;(d) the information mentioned in (b) and (c) with respect to sanctions imposed for speeding violations registered by other enforcement methods;(e) the information mentioned in (a), (b), (c) and (d) on sanctions effectively executed.1.4. Information with respect to the procedures described in recommendation 5(a) description in detail of the process of detection, prosecution and sanctioning of the speeding violations and how far they are carried out through automated procedures; how long does it take for offenders to receive a summons for paying a fine; what is the deadline for paying the fine; period and procedure for appeal (if possible);(b) does a fixed set of sanctions apply in such procedures; if so, which;(c) who is liable to pay the fine: the owner of the car, the driver, or both, and in which order;(d) is there still a role for the court in the procedure; if so, which;(e) how long does it take for the entire procedure including execution of the sanction (average, minimum and maximum duration);(f) information concerning special challenges Member States have met with respect to the implementation of the provisions concerning procedures of recommendation 5;(g) any other information that Member States consider relevant for the implementation of these provisions.1.5. Court decisionsThe same information as mentioned in 1.3 with respect to court decisions concerning sanctions for speeding violations.1.6. Changes in the rules on speedingDetailed information on any changes in the national rules on speed limits that came into effect during the reporting period.1.7. Other informationAny other information that Member States consider relevant for the implementation of the provisions on speeding enforcement including special challenges they have met with respect to the implementation of the provisions concerned.2. Information with respect to enforcement in the field of drink-driving2.1. Random breath testing and evidential breath testing (recommendation 6)(a) information concerning the places where and the times when random breath testing took place;(b) number, kind and type of alcohol screening devices used for random breath testing;(c) number of checks and periods during which random breath checking took place;(d) the number of checks carried out with an evidential breath test device; information on the number, kind and type of these devices available for the enforcement actions;(e) information on number/percentage of the information of (b),( d) and (f) with respect to drivers not resident in the Member State concerned;(f) information on other ways of testing the blood-alcohol level, e.g. blood tests;(g) information on drink-driving enforcement actions other than random checking actions, giving where possible similar details as requested in the questions above.2.2. Violations(a) number of drink-driving violations registered in the course of random drink-driving enforcement actions; numbers according to the equipment used for establishing the violations (alcohol screening device, evidential breath test device or other, e.g. blood test);(b) numbers of such violations committed by non-resident drivers.(c) total number of drink-driving violations registered (including those registered in the course of other enforcement actions);(d) total number of such violations committed by non-resident drivers;2.3. Sanctions(a) number of sanctions imposed for drink-driving violations registered in the course of random drink-driving enforcement actions;(b) numbers of different types of such sanctions (e.g. fines, reduction/addition of points, suspension/withdrawal of driving licence, immobilisation of vehicle), and further details such as amount of the fines, number of points, period of suspension, and for which violations;(c) the information mentioned in (a) and (b) on such sanctions imposed on non-resident drivers;(d) the information mentioned in (b) and (c) on sanctions imposed for drink-driving violations registered in the course of other enforcement actions;(e) information on sanctions imposed in cases where the driver refused to submit to a test;(f) the information mentioned in (a), (b), (c), (d) and (e) on sanctions effectively executed.2.4. Court decisionsThe same information as mentioned in 2.3 with respect to court decisions concerning sanctions for drink-driving violations.2.5. Changes in the rules on drink-drivingDetailed information on any changes in the national legal regime on drink-driving that came into effect during the reporting period.2.6. Other informationAny other information that Member States consider relevant for the implementation of the provisions on enforcement in the field of drink-driving, including special challenges they have met with respect to the implementation of the provisions concerned.3. Information with respect to enforcement of restraint use (recommendation 7)3.1. Intensive enforcement actions(a) number of checks carried out in the intensive enforcement actions on the different types of road; also for different types of checks (e.g. visual, camera);(b) duration of the intensive enforcement actions, number of times per year and periods during which they were held;(c) whether or not the intensive enforcement actions were combined with enforcement of other traffic rules and if so, which ones (e.g. speeding; drink-driving).3.2. Violations(a) number of seat belt and child restraint violations registered during intensive enforcement actions;(b) number of such violations committed by drivers and passengers of foreign-registered cars;(c) total number of seat belt and child restraint violations registered (including those registered at other occasions than intensive enforcement actions);(d) total number of such violations committed by drivers and passengers of foreign-registered cars.3.3. Sanctions(a) number of sanctions imposed for seat belt and child restraint violations registered during intensive enforcement actions;(b) numbers of different types of such sanctions and further details, such as amount of fines, number of reduced/added points, and for which violations;(c) the information mentioned in (b) on such sanctions imposed on drivers and passengers of foreign-registered cars;(d) the information mentioned in (b) on sanctions imposed for seat belt and child restraint violations registered at other occasions than intensive enforcement actions;(e) the information mentioned in (d) on sanctions imposed on drivers and passengers of foreign-registered cars;(f) the information mentioned in (a), (b), (c), (d) and (e) on sanctions effectively executed.3.4. Court decisionsThe same information as mentioned in 3.3 with respect to court decisions concerning seat belt and child restraint violations.3.5. Changes in the rules on restraint useDetailed information on any changes in the national rules on restraint use that came into effect during the reporting period.3.6. Other informationAny other information that Member States consider relevant for the implementation of the provisions on restraint use enforcement, including special challenges they have met with respect to the implementation of the provisions concerned.4. Information with respect to information of the public (recommendation 3)4.1. Information on publicity campaigns(a) number, duration and contents of publicity campaigns for each of the different types of enhanced enforcement actions, periods during which, places where they were held and/or communication media used;(b) authorities in charge of the campaigns mentioned in a) and others involved in their creation and preparation.4.2. Information on enforcement information at the road side(a) detailed relevant information with respect to these information actions, e.g. concerning their places (alongside which types of road), numbers, contents, periods during which they are placed;(b) authorities in charge of information actions mentioned in a) and others involved in their creation and preparation;(c) information about enforcement actions in the three fields concerned on which the public is not informed (e.g. hidden, unmarked cameras).4.3. Other informationAny other information that Member States consider relevant for the implementation of the provisions on information of the public, including special challenges they have met with respect to the implementation of the provisions concerned.5. Information on the effects of the intensive enforcement actionsNumbers of accidents, road fatalities and road injuries before and after intensive enforcement and information actions conducted in accordance with this Recommendation and, where possible, the influence of the separate types of enforcement and/or information actions on these numbers.6. Information with respect to drugs-driving6.1. Information on the national situationAny information about the legal and factual situation: national rules on drugs-driving, including drugs covered, legal limits, testing methods, sanctions and enforcement practice; also rules not specifically on drugs-driving but which can have a similar effect (e.g. provisions on the driving capability more in general).6.2. Information on actions undertakenDetailed information about concrete actions and best practice with respect to drugs-driving; (examples of such actions are: applying standard tests for drugs and medicines on drivers who are involved in fatal accidents and registering and monitoring the resulting data, conducting information or publicity campaigns about the potential dangers of drugs-driving).6.3. ChallengesSpecial challenges that Member States encounter in this field.6.4. Other informationAny other information that Member States consider relevant in this respect.(1) Where possible, the information should also be broken down between private and commercial vehicles.


title: Recommendation for a Council opinion in accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 on the updated convergence programme of Latvia, 2005-2008

text:
Important legal notice

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52006SC0110

Recommendation for a Council opinion in accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated convergence programme of Latvia, 2005-2008  /* SEC/2006/0110 final */

	[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |Brussels, 1.2.2006SEC(2006) 110 finalRecommendation for aCOUNCIL OPINIONin accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated convergence programme of Latvia, 2005-2008(presented by the Commission)EXPLANATORY MEMORANDUMBackgroundThe Stability and Growth Pact, which entered into force on 1 July 1998, is based on the objective of sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation. In 2005, the Pact was amended for the first time. The reform acknowledged the Pact’s usefulness in anchoring fiscal discipline but sought to strengthen its effectiveness and economic underpinnings as well as to safeguard the sustainability of the public finances in the long run.Council Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies[1], which is part of the Pact, stipulates that Member States have to submit, to the Council and the Commission, stability or convergence programmes and annual updates thereof (Member States that have already adopted the single currency submit (updated) stability programmes and Member States that have not yet adopted it submit (updated) convergence programmes). The first convergence programme of Latvia was submitted in May 2004. In accordance with the Regulation, the Council delivered an opinion on it on 5 July 2004 on the basis of a recommendation from the Commission and after having consulted the Economic and Financial Committee. In accordance with the same procedure, updated stability and convergence programmes are assessed by the Commission and examined by the Committee mentioned above, while the Council may examine them.In these programmes, Member States need to specify their medium-term objective for the budgetary position and set out the policy measures to achieve and maintain it, including the accompanying economic assumptions. Following the reform of the Pact, the medium-term objective should be differentiated for individual Member States in the light of the economic and budgetary heterogeneity in the Union, including as regards the fiscal risk to sustainability. Other elements of the reform are that a more symmetrical approach to fiscal policy over the cycle through enhanced budgetary discipline in economic good times should be achieved, while “major structural reforms” with a verifiable impact on long-term sustainability should be taken into account for a temporary deviation from the medium-term objective or the adjustment path towards it.Taking into account the Commission services’ autumn 2005 forecast, the code of conduct[2], the commonly agreed methodology for the estimation of potential output and cyclically-adjusted balances and the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008, the Commission has examined the recently submitted update of the convergence programme of Latvia and, based on its assessment below, has adopted a recommendation for a Council opinion on it.Assessment1.  The third updated Latvian convergence programme was sent to the Commission on 30 November and covers the period 2005 to 2008. The programme broadly follows the model structure for stability and convergence programmes specified in the new code of conduct. The programme has gaps in the optional data prescribed by the new code of conduct (in particular, data are not given for labour productivity and hours worked).2.  Over the last decade, annual real GDP growth in Latvia has averaged over 6%, marking an impressive recovery after the transition-related economic disruption. Real GDP in 2005 is expected to have finally exceeded the pre-1991 level. This growth performance has been characterised by strong productivity developments and more recently also by employment growth. However, evidence of overheating from developments in the external imbalance, inflation and credit expansion has mounted. High external imbalances have left Latvia reliant on capital inflows, and the foreign debt-to-GDP ratio has risen. The programme update projects real GDP growth ease to 7.5% in 2006, down from 8.4% in 2005, followed by a further slight deceleration to 7.0% in both 2007 and 2008. Private consumption and investment are expected to remain the main driving forces of growth, while net exports contributions are expected to turn modestly positive. Overall, projected GDP growth is plausible when compared to the Commission services autumn forecast (to 2007) and to calculations of potential growth. Using the commonly agreed method, on the basis of the figures in the updated programme, indicates that potential GDP growth should remain high but on a slightly declining trend in the medium term; a negative output gap would appear from 2007 onwards. However, the calculation of potential growth (and therefore of the output gap) needs to be interpreted with caution for countries going through a rapid catching-up process. By contrast, the programme’s projection for HICP inflation (declining rapidly from 6.9% in 2005 - the highest among the Member States - to 3.5% in 2008) and the current account deficit (declining from 13.0% of GDP in 2004 to 8.0% of GDP in 2008) both seem optimistic, assessed in particular against the Commission services’ autumn forecast. Overall, the macroeconomic scenario presents non-negligible risks, to which attention should be given in the context of the convergence process.3.  Since the lats entered ERM II on 2 May 2005 it has remained well within the fluctuation band of plus or minus one percent declared by the Latvian authorities against the central rate. Spreads of 3-month money rates for lats vis-à-vis the euro came down markedly in the course of the year from over 100 basis points in early January to around 40 basis points in late November. Money market spreads increased sharply in late December, but this seems to have been due to temporary liquidity factors related to the increase in the reserve ratio from 6 to 8% effective from 24 December 2005. For most of 2005 spreads of sovereign bonds vis-à-vis euro area benchmarks have remained at low levels of around 50 basis points.4.  In its opinion of 8 March 2005, the Council endorsed the budgetary strategy presented in the previous update of the convergence programme, covering the period 2004-2007. While not giving policy invitations, the Council nevertheless considered that the assessment of the appropriate fiscal position was dependent on its contribution to demand pressures in the economy being appropriate to consolidating the moderation in inflation from its then recent peak. As regards budgetary implementation in 2005, the Commission services’ autumn 2005 forecast estimated a general government deficit of 1.2% of GDP (based on GDP growth of 9.1%) against a target set in the previous update of the convergence programme of 1.6% of GDP (with GDP growth of 6.7%). However, recent data on a cash basis on the execution of the government budget indicates that the outcome will be even stronger. Hence, the 2005 deficit outturn is very likely to be lower than the present update’s estimated general government deficit for 2005 of 1.5% of GDP (based on real GDP growth of 8.4%).5.  Based on the very cautious estimate of the 2005 outturn for the general government deficit, the update aims at a modest reduction of the deficit later in the programme period. The update foresees the deficit remaining at 1.5% in 2006, declining to 1.4% in 2007 and 1.3% in the final year, 2008. Both revenue- and expenditure-to-GDP ratios are planned to increase over the programme period (by 2 p.p.). Public investment and not separately identified “other expenditure” are set to increase the most and social transfers other than in kind to decrease the most. The primary balance is set to decrease by 0.1 percentage point over the same period. The November 2005 update broadly confirms the previous update’s planned adjustment, both as regards modest scale and timing, in spite of a considerably stronger macroeconomic scenario in the most recent update.6.  Based on Commission services’ calculations on the basis of the programme according to the commonly agreed methodology, the structural balance, i.e. the cyclically-adjusted budget balance net of one-off and other temporary measures, is planned to improve only slightly over the programme period (by about ¾ percentage points of GDP). The planned fiscal effort is back-loaded and concentrated in years in which the output gap is estimated to be negative. The update identifies a medium-term objective (MTO) for the budgetary position, as meant in the Stability and Growth Pact, of a structural deficit of “around 1% of GDP”, and aims at achieving this position in the final year of programme period. As the programme’s MTO is more demanding than the minimum benchmark (estimated at a deficit of around 2% of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The programme’s MTO could be judged to be at an appropriate level because it adequately reflects the debt ratio and average potential output growth in the long term. However, taking into account the risks to sustainable economic convergence highlighted above, a more demanding MTO would seem appropriate.7.  The budgetary outcome could be worse than projected in the programme. On the positive side, a cautious track record for budgetary planning suggests that outcomes could be better than targeted (as was the case in 2004 and is also expected by the Commission services for 2005). In particular, growth forecasts as well as assumed tax elasticities underlying the budget have hitherto usually proved on the low side. In addition, budgeted expenditures have not always been fully executed, mainly due to delays in implementation of projects partly financed by EU funding. On the other hand, tax elasticities in the present update appear on the high side; moreover, the programme refers to several (proposed) social policy measures which would result in increased expenditure, whereas the programme projects the ratio of such expenditure to fall.8.  In view of this risk assessment, the budgetary strategy outlined in the programme may not be sufficient to achieve a budgetary position in structural terms that can be considered as appropriate under the Pact by the end of the programme period. Also, set against the assessment that the 2005 outturn is likely to have been substantially stronger than assumed in the programme, and possibly close to the MTO, the budgetary target for 2006 could imply a departure from the MTO by up to roughly 0.5% of GDP in 2006 and also 2007. Moreover, if a stronger 2005 outturn is confirmed and the target for 2006 is maintained, there is also a concern that the fiscal stance in 2006 would then be expansionary and inappropriate, given that the 2005-06 period may qualify as “good times”. For euro area and ERM II Member States, the SGP requires an annual improvement in the structural balance of at least 0.5% of GDP (as a benchmark), with a higher adjustment in periods of good times. A stronger structural adjustment path than planned would also seem appropriate to ensure a stable macroeconomic convergence process.9.  According to the Stability and Growth Pact, “major structural reforms” with a verifiable impact on the long-term sustainability of the public finances should be taken into account when defining the adjustment path to the programme’s MTO or for allowing a temporary deviation from the programme’s MTO. The programme notes that the ongoing pension reform and introduction of a second pillar, in particular, will gradually reduce social security contributions in the general government balance compared to the 2004 level. The net cost of the pension reform is estimated in the programme at 0.25% of GDP in 2005, rising progressively to 1¼% of GDP in 2008. This could allow a temporary deviation from the required yearly adjustment path of 0.5% of GDP towards the programme’s MTO because the structural reforms on which it is based are sufficiently detailed in the programme and have a significant beneficial impact on the long-term sustainability of the public finances. Moreover compliance with the budgetary requirements of the Treaty and the Stability and Growth Pact appears ensured as regards the provision of a safety margin against breaching the 3% of GDP deficit reference value in all years of the programme. Nevertheless, the suggestion above for a more demanding pace of adjustment towards the programme’s MTO than implied by the programme seems feasible given that in the early programme years the estimated net cost of the pension reform is modest.10.  The debt ratio is estimated at 14.9% of GDP in 2005, well below the 60% of GDP Treaty reference value. The debt ratio is projected to decrease very slightly over the programme period, to 14.7% of GDP in 2008, with the effects of deficits substantially dampened by high nominal GDP growth.11.  With regard to the sustainability of public finances, Latvia appears to be at low risk on grounds of the projected budgetary costs of ageing populations. The currently very low level of gross debt is projected to remain below the 60% reference value throughout the 2005-2050 projection period. Latvia’s pension reform launched in 1996 contributes significantly to contain the budgetary impact of an ageing population..12.  The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, the convergence programme outlines measures to support jobs and growth by changes in the revenue and expenditure structure (especially a shift of the tax burden from direct to indirect taxation and a cut in transfers) and by making public investment a spending priority. Nonetheless, the potential role of the fiscal stance in delivering key objectives, in particular containing inflation and addressing the external account imbalance has not been sufficiently explored.13.  The National Reform Programme of Latvia, submitted on 21 October 2005, in the context of the renewed Lisbon strategy for growth and jobs, identifies securing macro-economic stability as the main challenge with implications for public finances and to that end allots a major role to the strengthening of fiscal discipline and budgetary planning procedures. The budgetary implications of the limited number of concrete reform measures specified in the National Reform Programme are reflected in the budgetary projections of the convergence programme. The public finance measures envisaged in the convergence programme are in line with the actions foreseen in the National Reform Programme. As mentioned above, the convergence programme outlines measures to support growth and employment by changes in the revenue and expenditure structure (especially a shift of the tax burden from direct to indirect taxation and a cut in transfers) and by making public investment a spending priority.In view of the above assessment, and in the light of the need to ensure sustainable convergence, including by reducing the external imbalance and containing inflation, it would be appropriate for Latvia to consider the achievement of more ambitious budgetary positions than currently planned, notably by bringing forward the attainment of the MTO set in the programme, maintaining it during the programme period, and avoiding pro-cyclical fiscal policies in “good times”.Recommendation for aCOUNCIL OPINIONin accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated convergence programme of Latvia, 2005-2008THE COUNCIL OF THE EUROPEAN UNION,Having regard to the Treaty establishing the European Community,Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies[3], and in particular Article 9(3) thereof,Having regard to the recommendation of the Commission,After consulting the Economic and Financial Committee,HAS DELIVERED THIS OPINION:14.  On [14 February 2006] the Council examined the updated convergence programme of Latvia, which covers the period 2005 to 2008.15.  Over the last decade, annual real GDP growth in Latvia has averaged over 6%. This growth performance has been characterised by strong productivity developments and more recently also by employment growth. However, high external imbalances have left Latvia reliant on capital inflows, and the foreign debt-to-GDP ratio has risen. Inflation has picked up since mid-2003 and remains above 6%, eroding the external competitiveness of the economy and posing a threat to growth. The macroeconomic scenario underlying the programme envisages that real GDP growth will ease from 8.4% in 2005 to 7.2% on average over the rest of the programme period. Assessed against currently available information, this scenario appears to be based on plausible growth assumptions. The programme’s projections for inflation and the current account deficit appear to be on the low side.16.  The programme broadly follows the model structure for stability and convergence programmes specified in the new code of conduct[4].17.  The estimated general government deficit for 2005 in the present update is 1.5% of GDP based on GDP growth of 8.4%. This means a slightly lower deficit and a significantly better growth performance than foreseen in the previous programme (deficit of 1.6% of GDP, growth of 6.7%). The Commission services’ autumn forecast estimated a deficit of 1.2% of GDP based on GDP growth of 9.1%. However, recent data on the execution of the government budget on a cash basis indicate that the outcome will be even better than put forward in the update and the Commission services’ autumn forecast.18.  The Council Opinion on the previous update adopted on 8 March 2005 contained no policy invitations. However, it stated that the assessment of the consolidation path and of the appropriateness of the fiscal position was conditional on the favourable development of the external balance, on demand pressures in the economy, and on the moderation in inflation from its then recent peak.19.  The updated programme aims at a modest reduction of the general government deficit. The update foresees a general government deficit of 1.5% in 2005, 1.5% in 2006, 1.4% in 2007 and 1.3% in the final year, 2008. The primary balance is set to decrease by 0.1 percentage point over the same period. Both revenue and expenditure to GDP ratios are planned to increase over the programme period (by 2.1 p.p. and 1.9 p.p. respectively). Public investment and not separately identified “other” expenditure increase the most (from 2.3% of GDP in 2005 to 3.3% of GDP in 2008 and from 12.3% of GDP to 13.8% of GDP in 2008, respectively) and social transfers other than in kind decrease the most (from 9.3% of GDP in 2005 to 8.9% of GDP in 2008). Compared with the previous update, the November 2005 update broadly confirms the planned adjustment, although the growth outlook is considerably stronger.20.  Based on Commission services’ calculations on the basis of the programme according to the commonly agreed methodology, the structural balance, i.e. the cyclically-adjusted budget balance net of one-off and other temporary measures, is planned to improve only slightly over the programme period (by about ¾ percentage points of GDP). The planned fiscal effort is back-loaded and concentrated in years in which the output gap is estimated to be negative. The update identifies a medium-term objective (MTO) for the budgetary position, as meant in the Stability and Growth Pact, of a structural deficit of “around 1% of GDP”, and aims at achieving this position in the final year of programme period. As the programme’s MTO is more demanding than the minimum benchmark (estimated at a deficit of around 2% of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. The programme’s MTO could be judged to be at an appropriate level because it adequately reflects the debt ratio and average potential output growth in the long term. However, taking into account the risks to sustainable economic convergence highlighted above, a more demanding MTO would seem appropriate.21.  The budgetary outcome could be worse than projected in the programme. Even though the growth forecasts and assumed tax elasticities underlying past budgets have usually proved cautious, the latter is no longer necessarily the case in the current programme as its assumed tax elasticities seem favourable. Furthermore, the programme refers to several (proposed) social policy measures which would increase such expenditure rather than decrease it, as projected in the programme.22.  In view of this risk assessment, the budgetary stance in the programme may not be sufficient to achieve a budgetary position in structural terms that can be considered as appropriate under the Pact by the end of the programme period. Also, as stated above, a more ambitious strategy than that set in the programme would be desirable. The pace of the adjustment towards the programme’s MTO implied by the programme is not in line with the Stability and Growth Pact, which specifies that, for euro area and ERM II Member States, the annual improvement in the structural balance should be 0.5% of GDP as a benchmark and that the adjustment should be higher in good economic times. In particular, a possible deterioration in the structural balance in 2006, implied by maintaining the 2006 target if the 2005 outcome is significantly stronger than expected, would correspond to significant fiscal easing in a context of continuing very high demand pressures and relevant stability risks.23.  According to the Stability and Growth Pact, “major structural reforms” with a verifiable impact on the long-term sustainability of the public finances should be taken into account when defining the adjustment path to the programme’s MTO or for allowing a temporary deviation from the programme’s MTO. The programme notes that the ongoing pension reform and introduction of a second pillar, in particular, will gradually reduce social security contributions in the general government balance compared to the 2004 level. The net cost of the pension reform is estimated in the programme at 0.25% of GDP in 2005, rising progressively to 1¼% of GDP in 2008. This could allow a temporary deviation from the required yearly adjustment path of 0.5% of GDP towards the programme’s MTO because the structural reforms on which it is based are sufficiently detailed in the programme and have a significant beneficial impact on the long-term sustainability of the public finances. Moreover compliance with the budgetary requirements of the Treaty and the Stability and Growth Pact appears ensured as regards the provision of a safety margin against breaching the 3% of GDP deficit reference value in all years of the programme. Nevertheless, the suggestion above for a more demanding pace of adjustment towards the programme’s MTO than implied by the programme seems feasible given that in the early programme years the estimated net cost of the pension reform is modest.24.  The debt ratio is estimated at 14.9% of GDP in 2005, well below the 60% of GDP Treaty reference value. The debt ratio is projected to decrease very slightly over the programme period, to 14.7% of GDP in 2008, with the effects of persistent deficits substantially dampened by high nominal GDP growth.25.  With regard to the sustainability of public finances, Latvia appears to be at low risk on grounds of the projected budgetary costs of ageing populations[5]. The currently very low level of gross debt is projected to remain below the 60% reference value throughout the 2005-2050 projection period. Latvia is implementing a pension reform launched in 1996 which contributes significantly to contain the budgetary impact of ageing populations.26.  The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008. In particular, the convergence programme outlines measures to support jobs and growth by changes in the revenue and expenditure structure (especially a shift of the tax burden from direct to indirect taxation and a cut in transfers) and by making public investment a spending priority. Nonetheless, greater focus is needed on delivering the key objectives, such as containing inflation, addressing the external account imbalance and increasing activity rates by promoting an inclusive labour market.27.  The National Reform Programme of Latvia, submitted on 21 October 2005 in the context of the renewed Lisbon strategy for growth and jobs, identifies securing macro-economic stability as the main challenge with implications for public finances and to that end strengthening of fiscal discipline and budgetary planning procedures are to play the major role. The budgetary implications of the limited number of concrete reform measures specified in the National Reform Programme are reflected in the budgetary projections of the convergence programme. The public finance measures envisaged in the convergence programme are in line with the actions foreseen in the National Reform Programme. As mentioned above, the convergence programme outlines measures to support growth and employment by changes in the revenue and expenditure structure (especially a shift of the tax burden from direct to indirect taxation and a cut in transfers) and by making public investment a spending priorityIn view of the above assessment, and in the light of the need to ensure sustainable convergence, including by reducing the external imbalance and containing inflation, the Council is of the opinion that it would be appropriate for Latvia to consider the achievement of more ambitious budgetary positions than currently planned, notably by bringing forward the attainment of the MTO set in the programme, maintaining it during the programme period and avoiding pro-cyclical fiscal policies in “good times”.Comparison of key macroeconomic and budgetary projections2004 | 2005 | 2006 | 2007 | 2008 |Real GDP (% change) | CP Nov 2005 | 8.5 | 8.4 | 7.5 | 7.0 | 7.0 |COM Nov 2005 | 8.3 | 9.1 | 7.7 | 7.1 | n.a. |CP Dec 2004 | 8.1 | 6.7 | 6.5 | 6.5 | n.a. |HICP inflation (%) | CP Nov2005 | 6.2 | 6.9 | 5.6 | 4.3 | 3.5 |COM Nov 2005 | 6.2 | 6.8 | 6.0 | 4.8 | n.a. |CP Dec 2004 | 6.2 | 4.3 | 3.0 | 3.0 | n.a. |Output gap (% of potential GDP) | CP Nov 20053 | 0.5 | 0.8 | 0.4 | -0.5 | -1.1 |COM Nov 20055 | 0.1 | 0.8 | 0.3 | -0.7 | n.a. |CP Dec. 20043 | 1.6 | 0.9 | 0.0 | -0.5 | n.a. |General government balance1 (% of GDP) | CP Nov. 2005 | -1.0 | -1.5 | -1.5 | -1.4 | -1.3 |COM Nov 2005 | -1.0 | -1.2 | -1.5 | -1.5 | n.a. |CP Dec.2004 | -1.7 | -1.6 | -1.5 | -1.4 | n.a. |Primary balance (% of GDP) | CP Nov 2005 | -0.2 | -0.7 | -0.8 | -0.6 | -0.6 |COM Nov 2005 | -0.2 | -0.5 | -0.8 | -0.8 | n.a. |CP Dec 2004 | -0.9 | -0.8 | -0.8 | -0.7 | n.a. |Cyclically-adjusted balance= Structural balance2 (% of GDP) | CP Nov. 20053 | -1.1 | -1.7 | -1.6 | -1.3 | -1.0 |COM Nov 20054 | -1.0 | -1.5 | -1.6 | -1.3 | n.a. |CP Dec 2004 | n.a. | n.a. | n.a. | n.a. | n.a. |Government gross debt (% of GDP) | CP Nov 2005 | 13.1 | 14.9 | 13.6 | 13.7 | 14.7 |COM Nov 2005 | 14.7 | 12.8 | 13.0 | 13.2 | n.a. |CP Dec 2004 | 14.2 | 14.5 | 15.8 | 15.0 | n.a. |Notes: 1 The net costs of the ongoing pension reform (introduction of a second pillar) are included in the deficit. The costs are estimated at 0.27% of GDP in 2005, 0.37% of GDP in 2006, 0.62% of GDP in 2007 and 1.32% of GDP in 2008. 2 Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures. The year-on year improvement in the cyclically-adjusted balance foreseen in the programme, adjusting for the impact of the phased implementation of the pension reform, would be 0.2% of GDP in 2006, 0.6% in 2007 and 1.0% in 2008, an average of 0.6% in the period 2006-2008. Since there are no other one-off and temporary measures specified in the programme, the cyclically-adjusted balance and the structural balance are identical. 3 Commission services calculations on the basis of the information in the programme. 4 There are no one-off and other temporary measures in the Commission services’ forecast. 5 Based on estimated potential growth of 7.9%, 8.3%, 8.3% and 8.2% respectively in the period 2004-2007. Source: Convergence programme (CP); Commission services’ autumn 2005 economic forecasts (COM); Commission services’ calculations. |[1] OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). All the documents referred to in this text can be found at the following website:http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm[2] “Specifications on the implementation of the Stability and Growth Pact and guidelines on the format and content of stability and convergence programmes”, endorsed by the ECOFIN Council of 11 October 2005.[3] OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm[4] The programme has gaps in the optional data prescribed by the new code of conduct (in particular, data are not given for labour productivity and hours worked).[5] Details on long-term sustainability are provided in the technical assessment of the programme by the Commission services (http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm).


title: Recommendation for a Council opinion in accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 on the updated convergence programme of Sweden, 2005-2008

text:
Important legal notice

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52006SC0027

Recommendation for a Council opinion in accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated convergence programme of Sweden, 2005-2008  /* SEC/2006/0027 final */

	[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |Brussels, 11.1.2006SEC(2006) 27 finalRecommendation for aCOUNCIL OPINIONin accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated convergence programme of Sweden, 2005-2008(presented by the Commission)EXPLANATORY MEMORANDUMBackgroundThe Stability and Growth Pact, which entered into force on 1 July 1998, is based on the objective of sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation. In 2005, the Pact was amended for the first time. The reform acknowledged the Pact’s usefulness in anchoring fiscal discipline but sought to strengthen its effectiveness and economic underpinnings as well as to safeguard the sustainability of the public finances in the long run.Council Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies[1], which is part of the Pact, stipulates that Member States have to submit, to the Council and the Commission, stability or convergence programmes and annual updates thereof (Member States that have already adopted the single currency submit (updated) stability programmes and Member States that have not yet adopted it submit (updated) convergence programmes). The first convergence programme of Sweden was submitted in December 1998. In accordance with the Regulation, the Council delivered an opinion on it on 8 February 1999 on the basis of a recommendation from the Commission and after having consulted the Economic and Financial Committee. In accordance with the same procedure, updated stability and convergence programmes are assessed by the Commission and examined by the Committee mentioned above, while the Council may examine them.In these programmes, Member States need to specify their medium-term objective for the budgetary position and set out the policy measures to achieve and maintain it, including the accompanying economic assumptions. Following the reform of the Pact, the medium-term objective should be differentiated for individual Member States in the light of the economic and budgetary heterogeneity in the Union, including as regards the fiscal risk to sustainability. Other elements of the reform are that a more symmetrical approach to fiscal policy over the cycle through enhanced budgetary discipline in economic good times should be achieved, while “major structural reforms” with a verifiable impact on long-term sustainability should be taken into account for a temporary deviation from the medium-term objective or the adjustment path towards it.Taking into account the Commission services’ autumn 2005 forecast, the code of conduct[2], the commonly agreed methodology for the estimation of potential output and cyclically-adjusted balances and the broad economic policy guidelines included in the integrated guidelines for the period 2005-2008, the Commission has examined the recently submitted update of the convergence programme of Sweden and, based on its assessment below, has adopted a recommendation for a Council opinion on it.Assessment1.  The sixth updated Swedish convergence programme was sent to the Commission on 24 November 2005 and covers the period 2005 to 2008. The programme is based on the Budget Bill for 2006 adopted by Parliament on 16 December 2005. The programme broadly follows the model structure for stability and convergence programmes specified in the new code of conduct. The programme has gaps in the compulsory and optional data prescribed by the new code of conduct (especially compensation of employees is missing). The Swedish programme does not explicitly define the medium-term objective (MTO) for the budgetary position as required by the code of conduct.2.  Over the last decade, annual real GDP growth in Sweden has been slightly below 3% on average. This growth performance has been characterised by strong productivity developments and positive net export contributions. However, over the last few years employment growth has been weak and employment rates reduced while unemployment has increased. Inflation developments have stayed at the lower range of the Riksbank’s target of 2% plus or minus one percentage point. Real GDP growth in the update is forecast to be 2.4% in 2005, then to pick up to 3.1% in 2006, 2.8% in 2007 and 2.3% in 2008. Employment growth is expected to recover in the coming years. Overall, the macroeconomic scenario underlying the update seems plausible and is broadly in line with the Commission services’ evaluation including the autumn 2005 forecast. Calculations using the commonly agreed method on the basis of the update figures indicate that potential GDP growth rates remain relatively high but on a slightly declining trend in the medium term. There is a small amount of free resources in the economy in 2005 but already in 2006 the output gap is closing. Inflationary pressures are expected to remain subdued and gradually approach the Riksbank 2% target over the programme horizon. The programme’s projections for inflation appear realistic.3.  The krona has been relatively stable vis-à-vis the euro in 2002-2004 but has depreciated recently despite Sweden’s stable macroeconomic environment, solid growth outlook and current account surpluses, probably reflecting the relatively low repo rates. The yield differential between long-term government bonds in Sweden and the euro area, standing at around 50 basis points in the start of 2004, has declined to almost zero.4.  On 18 January 2005, in its opinion the Council endorsed the budgetary strategy presented in the 2004 update of the convergence programme of Sweden. Regarding the 2005 budgetary implementation, the 2004 update targeted a 0.6% of GDP general government surplus for 2005 while the current update forecast a 1.6% surplus despite a downward revision of 2005 growth. Overall, revenues have come in better than expected, partially explained by some one-off corporate taxes, but also expenditures have developed in a contained way.5.  The budgetary framework in Sweden is geared at maintaining sound public finances in the context of full employment and sustainable growth. To this end it includes a general government surplus objective of 2% of GDP on average over the cycle, multi-annual nominal ceilings for central government expenditures and a balanced budget requirement for local governments. This update foresees a general government surplus of 1.6% in 2005, 0.9% in 2006, 1.2% in 2007 and 1.7% in the final year, 2008. Both expenditure and revenue ratios are on a gradually declining trend over the projection period. However, while the reduction in the revenue ratio is front-loaded, the reduction in the expenditure ratio is back-loaded. While the pension system and the local government sub-sector are expected to show stable surpluses, the central government deficit is driving the changes in the general government position. Sweden currently uses the transition period until spring 2007 for the implementation of the March 2004 Eurostat decision on the classification of second-pillar funded pension schemes. The effect on the general government balance of the implementation of this decision would be a downward adjustment of around 1% of GDP each year. Overall, compared with the previous programme, the new update broadly confirms the planned adjustment against a slightly more favourable macroeconomic scenario.6.  Based on Commission services’ calculations on the basis of the programme, according to the commonly agreed methodology, the estimated CAB net of one-offs is around 1% of GDP in 2006, reduced from around 1¾% in 2005. Thus, the fiscal expansion planned for 2006 takes place against a closing output gap and improving cyclical conditions. The CAB then gradually improves towards 1½-2% in 2007-2008.7.  The programme presents the national surplus objective of 2% on average over the cycle as the guiding medium-term reference in the update strategy. It is also the cornerstone in the Swedish national budgetary rule-based framework. Therefore, 2% of GDP can be regarded as the programme’s MTO.8.  As the MTO implied in the programme is more demanding than the minimum benchmark (estimated at a deficit of about 0.5% of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. As regards appropriateness, the programme’s MTO is significantly more demanding than implied by the debt ratio and the average potential output growth. However, its achievement remains central for ensuring long-term sustainability.9.  On balance, the risks to the budgetary projections in the programme appear to be on the positive side. This is because recent national accounts data point to 2005 growth having been higher than forecast in the programme. Moreover, recent cash data indicate that tax revenues have been substantially stronger towards the end of 2005 than those included in the update budget figures. Hence, the budgetary outcome could be better than projected in the programme.10.  In view of this risk assessment, the budgetary stance outlined in the programme seems broadly sufficient to ensure that the programme’s MTO will be reached by the end of the programme period. Nevertheless, the expansionary budget for 2006 makes the budget position diverge from the MTO by roughly 1% of GDP in 2006 and 2007, putting at risk the achievement of the MTO within the programme period. Moreover, there is a concern that the strong expansionary fiscal stance in 2006 (with the CAB deteriorating by almost 1 percentage point) may not be fully appropriate in the sense that this period may qualify as “good times”. However, as stated above the programme’s MTO is significantly more demanding than required by the Stability and Growth Pact. In particular, over the whole programme period there is a sufficient safety margin against breaching the 3% of GDP threshold for the deficit with normal cyclical fluctuations. This assessment would also seem be robust to the reclassification in 2007 of the second-pillar funded pension schemes outside the general government accounts, as required by Eurostat. Overall, the budgetary position is sound and the budgetary strategy provides an example of fiscal policies run in compliance with the pact.11.  The gross debt ratio is projected to continue to decline and reach 46% of GDP in 2008. Debt is mainly issued by the central government sector - which runs budget deficits - and the surplus in the pension system is mainly invested in non-government assets, thus slowing the reduction in the gross debt ratio. The debt ratio net of financial assets is negative implying that the general government sector has a net asset position. This is projected to improve from some -6% of GDP in 2004 to close to -9% in 2008. These projections seem plausible.12.  With regard to the sustainability of public finances, Sweden appears to be at low risk on grounds of the projected budgetary costs of ageing populations. The level of gross debt is currently comfortably below the 60% reference value and is projected to remain below the reference value throughout most of the programme period. The Swedish strategy of putting sustainability concerns at the heart of fiscal policy making, including the pension system reform, which contains pension expenditure and involves accumulation of assets, contributes positively to the outlook for the public finances. The currently favourable budgetary position contributes to limit the projected budgetary impact of ageing populations while the planned consolidation towards the 2% MTO at the end of the programme period contributes to improve sustainability.13.  The envisaged measures are broadly consistent with the broad economic policy guidelines in the area of public finances, included in the integrated guidelines for the period 2005-2008. While a sufficiently strong medium-term budgetary position is planned to be maintained, the departure from the MTO in 2006-2007 may risk being pro-cyclical and also puts at risk the achievement of the MTO at the end of the programme period.14.  Sweden’s National Reform Programme (NRP), submitted on 21 October 2005 within the context of the renewed Lisbon strategy for growth and jobs, put great emphasis on sustainable development and emphasises that the achievement and maintenance of high labour market participation and hours worked are important challenges, and will have a significant impact on public finances in the long term. The NRP incorporates the 2006 budget on which also the programme update is based and in this sense the two documents are consistent.15.  Recommendation for aCOUNCIL OPINIONin accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated convergence programme of Sweden, 2005-2008THE COUNCIL OF THE EUROPEAN UNION,Having regard to the Treaty establishing the European Community,Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies[3], and in particular Article 9(3) thereof,Having regard to the recommendation of the Commission,After consulting the Economic and Financial Committee,HAS DELIVERED THIS OPINION:16.  On [24 January 2006] the Council examined the updated convergence programme of Sweden, which covers the period 2005 to 2008. The programme broadly follows the model structure for stability and convergence programmes specified in the new code of conduct. The programme has gaps in the compulsory and optional data prescribed by the new code of conduct (especially compensation of employees is missing). The Swedish programme does not explicitly define the medium-term objective (MTO) for the budgetary position as required by the code of conduct.17.  Annual real GDP growth in Sweden has been slightly below 3% on average over the last decade. This growth performance has been characterised by strong productivity developments and positive net export contributions. However, over the last few years employment growth has been weak and employment rates reduced while unemployment has increased. The macroeconomic scenario underlying the programme envisages that real GDP growth will rise from 2.4 % in 2005 to 3.1% in 2006 and average 2.5% over the following two years of the programme period. In the first two years of the programme period the growth outlook implies an improvement of cyclical conditions, which then are projected to stay broadly neutral. Assessed against currently available information, this scenario appears to be plausible. The programme’s projections for inflation appear realistic.18.  On 18 January 2005, in its opinion the Council endorsed the budgetary strategy presented in the 2004 update of the convergence programme of Sweden. Regarding the 2005 budgetary implementation, the 2004 update targeted a 0.6% of GDP general government surplus for 2005 while the current update forecast a 1.6% surplus despite a downward revision of 2005 growth. Overall, revenues have come in better than expected, partially explained by some one-off corporate taxes, but also expenditures have developed in a contained way.19.  The budgetary framework is geared at maintaining sound public finances in the context of full employment and sustainable growth. To this end it includes a general government surplus objective of 2% of GDP on average over the cycle, multi-annual nominal ceilings for central government expenditures and a balanced budget balance requirement for local governments. This update foresees general government surpluses of 1.6% in 2005, 0.9% in 2006, 1.2% in 2007 and 1.7% in the final year, 2008. Both expenditure and revenue ratios are on a gradually declining trend over the projection period. The decline in the revenue ratio is front-loaded to 2006 due to tax cuts while the decline in the expenditure ratio is back–loaded, taking place against a forecast improvement in the labour market. Compared to the previous update, the current update broadly confirms a similar planned fiscal adjustment in the context of a more favourable macroeconomic scenario.20.  The programme presents the national surplus objective of 2% on average over the cycle as the guiding medium-term reference in the update strategy. It is also the cornerstone in the Swedish national budgetary rule-based framework. Therefore, 2% of GDP can be regarded as the programme’s MTO as it is in line with the principles for MTOs specified in the Stability and Growth Pact and the code of conduct. Over the programme period, the structural balance calculated according to the commonly agreed methodology is planned to improve from about 1% of GDP in 2006 to about 1½-2% of GDP in 2008.21.  As the medium-term objective (MTO) implied in the programme is more demanding than the minimum benchmark (estimated at a deficit of about 0.5% of GDP), its achievement should fulfil the aim of providing a safety margin against the occurrence of an excessive deficit. As regards appropriateness, the programme’s MTO is significantly more demanding than implied by the debt ratio and the average potential output growth. However, its achievement remains central for ensuring long-term sustainability.22.  The budgetary outcome in 2005 could be better than projected in the programme. In particular, recent cash-based information on tax revenues and quarterly national accounts support this assessment.23.  In view of this risk assessment, the budgetary stance outlined in the programme seems broadly sufficient to ensure that the programme’s MTO will be reached by the end of the programme period. Nevertheless, the expansionary budget for 2006 makes the budget position diverge from the MTO by roughly 1% of GDP in 2006 and 2007, putting at risk the achievement of the MTO within the programme period. Moreover, there is a concern that the strong expansionary fiscal stance in 2006 (with the cyclically-adjusted budget balance deteriorating by almost 1 percentage point) may not be fully appropriate in the sense that this period may qualify as “good times”. However, as stated above the programme’s MTO is significantly more demanding than required by the Stability and Growth Pact. In particular, over the whole programme period there is a sufficient safety margin against breaching the 3% of GDP threshold for the deficit with normal cyclical fluctuations. This assessment would also seem be robust to the reclassification in 2007 of the second-pillar funded pension schemes outside the general government accounts, as required by Eurostat. Overall, the budgetary position is sound and the budgetary strategy provides an example of fiscal policies run in compliance with the pact.24.  The debt ratio is estimated to have reached about 51% of GDP in 2005, well below the 60% of GDP Treaty reference value. The programme projects the debt ratio to decline to 46% of GDP by 2008.25.  With regard to the sustainability of public finances, Sweden appears to be at low risk on grounds of the projected budgetary costs of ageing populations. The level of gross debt is currently comfortably below the 60% reference value and is projected to remain below the reference value throughout most of the programme period. The Swedish strategy of putting sustainability concerns at the heart of fiscal policy making, including the pension system reform, which contains pension expenditure and involves accumulation of assets, contributes positively to the outlook for the public finances. The currently favourable budgetary position contributes to limit the projected budgetary impact of ageing populations while the planned consolidation towards the 2% MTO at the end of the programme period contributes to improve sustainability[4].26.  The envisaged measures in the area of public finances are broadly consistent with the broad economic policy guidelines, included in the integrated guidelines for the period 2005-2008. While a sufficiently strong medium-term budgetary position is planned to be maintained, the departure from the MTO in 2006-2007 may risk being pro-cyclical and also puts at risk the achievement of the MTO at the end of the programme period.27.  Sweden’s National Reform Programme (NRP), submitted on 21 October 2005 within the context of the renewed Lisbon strategy for growth and jobs, put great emphasis on sustainable development and emphasises that the achievement and maintenance of high labour market participation and hours worked are important challenges, and will have a significant impact on public finances in the long term. The NRP incorporates the 2006 budget on which also the programme update is based and in this sense the two documents are consistent.Comparison of key macroeconomic and budgetary projections 12004 | 2005 | 2006 | 2007 | 2008 |Real GDP (% change) | CP Nov 2005 | 3.6 | 2.4 | 3.1 | 2.8 | 2.3 |COM Nov 2005 | 3.6 | 2.5 | 3.0 | 2.8 | n.a. |CP Nov 2004 | 3.5 | 3.0 | 2.5 | 2.3 | n.a. |HICP inflation (%) | CP Nov 2005 | 0.9 | 1.5 | 1.5 | 2.0 | 2.0 |COM Nov 2005 | 1.0 | 0.7 | 1.4 | 1.8 | n.a. |CP Nov 2004 | 1.3 | 1.5 | n.a. | n.a. | n.a. |Output gap (% of potential GDP) | CP Nov 20052 | -0.3 | -0.4 | -0.1 | 0.1 | -0.1 |COM Nov 20056 | -0.3 | -0.4 | -0.1 | 0.0 | n.a. |CP Nov 20042 | -0.1 | 0.1 | -0.2 | -0.4 | n.a. |General government balance (% of GDP) | CP Nov 2005 | 1.6 | 1.6 | 0.9 | 1.2 | 1.7 |COM Nov 2005 | 1.6 | 1.4 | 0.8 | 1.1 | n.a. |CP Nov 2004 | 0.7 | 0.6 | 0.4 | 0.9 | n.a. |Primary balance (% of GDP) | CP Nov 2005 | 3.2 | 3.2 | 2.5 | 3.0 | 3.6 |COM Nov 2005 | 3.4 | 3.2 | 2.6 | 2.9 | n.a. |CP Nov 2004 | 2.8 | 2.8 | 2.7 | 3.3 | n.a. |Cyclically-adjusted balance (% of GDP) | CP Nov 20052 | 1.7 | 1.8 | 0.9 | 1.1 | 1.7 |COM Nov 2005 | 1.8 | 1.6 | 0.9 | 1.1 | n.a. |CP Nov 20042 | 0.8 | 0.5 | 0.5 | 1.2 | n.a. |Structural balance3 (% of GDP) | CP Nov 20054 | 1.1 | 1.6 | 0.9 | 1.1 | 1.7 |COM Nov 20055 | 1.2 | 1.4 | 0.9 | 1.1 | n.a. |CP Nov 2004 | n.a. | n.a. | n.a. | n.a. | n.a. |Government gross debt (% of GDP) | CP Nov 2005 | 51.1 | 50.9 | 49.4 | 47.8 | 46.0 |COM Nov 2005 | 51.1 | 50.6 | 49.4 | 47.8 | n.a. |CP Nov 2004 | 51.7 | 50.5 | 50.0 | 49.0 | n.a. |Notes: 1 The budgetary projections exclude the impact of the Eurostat decision of 2 March 2004 on the classification of funded pension schemes, which needs to be implemented by the time of the spring 2007 notification. Including this impact, the general government balance would be 0.6% in 2005, -0.1% in 2006, 0.2% in 2007 and 0.7% in 2008, while government gross debt would be 51.4% in 2005, 49.9% in 2006, 48.3% in 2007 and 46.5% in 2008. 2 Commission services calculations on the basis of the information in the programme. 3 Cyclically-adjusted balance (as in the previous rows) excluding one-off and other temporary measures. 4 The programme provides no explicit information on one-off and other temporary measures. However, the Swedish Ministry of Finance has provided an estimate of one-offs of 0.6% of GDP in 2004 and 0.2% of GDP in 2005. 5 One-off and other temporary measures taken from the Commission services’ autumn 2005 forecast (0.6% of GDP in 2004 and 0.2% of GDP in 2005; deficit-reducing). 6 Based on estimated potential growth of 2.5%, 2.6%, 2.8% and 2.7% respectively in the period 2004-2007. Source: Convergence programme (CP); Commission services’ autumn 2005 economic forecasts (COM); Commission services’ calculations. |[1] OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). All the documents referred to in this text can be found at the following website:http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm[2] Opinion of the Economic and Financial Committee on the “Specifications on the implementation of the Stability and Growth Pact and guidelines on the format and content of stability and convergence programmes”, endorsed by the ECOFIN Council of 11 October 2005.[3] OJ L 209, 2.8.1997, p. 1. Regulation as amended by Regulation (EC) No 1055/2005 (OJ L 174, 7.7.2005, p. 1). The documents referred to in this text can be found at the following website:http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm[4] Details on long-term sustainability are provided in the technical assessment of the programme by the Commission services, to be published at the website: http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm