title: Council Recommendation of 10 July 2012 on the National Reform Programme 2012 of Slovakia and delivering a Council opinion on Stability Programme of Slovakia, 2012-2015

text:
               24.7.2012

               EN

               Official Journal of the European Union

               C 219/74

         COUNCIL RECOMMENDATION
   of 10 July 2012
   on the National Reform Programme 2012 of Slovakia and delivering a Council opinion on Stability Programme of Slovakia, 2012-2015
   2012/C 219/22
   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,
   Having regard to the conclusions of the European Council,
   Having regard to the opinion of the Employment Committee,
   After consulting the Economic and Financial Committee,
   Whereas:

               (1)

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

               (2)

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

               (3)

               On 12 July 2011, the Council adopted a recommendation (3) on Slovakia’s National Reform Programme for 2011 and delivered its opinion on Slovakia’s updated Stability Programme for 2011-2014.

               (4)

               On 23 November 2011, the Commission adopted the second Annual Growth Survey, marking the start of the second European Semester of ex ante and integrated policy coordination, which is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (4), adopted the Alert Mechanism Report, in which it did not identify Slovakia as one of the Member States for which an in-depth review would be carried out.

               (5)

               On 1 December 2011, the Council adopted conclusions calling on the Social Protection Committee, in cooperation with the Employment and other Committees, to present its views on actions recommended within the Europe 2020 policy cycle. These views form part of the opinion of the Employment Committee.

               (6)

               The European Parliament has been duly involved in the European Semester, in accordance with Regulation (EC) No 1466/97, and, on 15 February 2012, adopted a resolution on employment and social aspects in the Annual Growth Survey 2012 and a resolution on the contribution to the Annual Growth Survey 2012.

               (7)

               On 2 March 2012, the European Council endorsed the priorities for ensuring financial stability, fiscal consolidation and action to foster growth. It underscored the need to pursue differentiated, growth-friendly fiscal consolidation, to restore normal lending conditions to the economy, to promote growth and competitiveness, to tackle unemployment and the social consequences of the crisis, and to modernise public administration.

               (8)

               On 2 March 2012, the European Council also invited the Member States participating in the Euro Plus Pact to present their commitments in time to be included in their Stability or Convergence Programmes and their National Reform Programmes.

               (9)

               On 30 April 2012, Slovakia submitted its Stability Programme covering the period 2012-2015 and its 2012 National Reform Programme. In order to take account of their interlinkages, the two Programmes have been assessed at the same time.

               (10)

               Based on the assessment of the Stability Programme pursuant to Regulation (EC) No 1466/97, the Council is of the opinion that the macroeconomic scenario underpinning the budgetary projections in the Programme is plausible. It is broadly in line with the Commission services 2012 spring forecast, although the latter assumes somewhat higher real GDP growth in 2012. The stated objective of the budgetary strategy outlined in the Stability Programme is to ensure the long-term sustainability of public finances. The intermediary steps defined to reach this are a rigorous implementation of the 2012 budget and a reduction of the headline deficit below 3 % of GDP in 2013, the deadline for correction of the excessive deficit set by the Council. The achievement of the headline deficit target in 2013, however, may fall short of plans. The Stability Programme has changed the medium-term budgetary objective (MTO) from a close-to-balanced budget to a structural deficit of 0,5 % of GDP, which is not foreseen to be achieved within the programme period. The new MTO adequately reflects the requirements of the Stability and Growth Pact. Based on the (recalculated) structural budget balance (5), the average annual fiscal effort in 2010-2013 amounts to 1,3 % of GDP, well above the required value recommended by the Council, whereby the residual fiscal effort is somewhat back loaded to 2013. The target for 2013 is subject to risks, as suggested revenue measures may fall short of the objective; simultaneous implementation of all small-scale measures can be difficult to implement; and in light of upwards revisions of the deficit targets that took place in the past.
               In addition, further across-board expenditure cuts may prove unsustainable in the medium term. In 2014 and 2015, the average fiscal effort stands at 0,3 % of GDP annually, which is below the required adjustment of 0,5 % of GDP for countries which have not yet reached the MTO. Nevertheless, according to the Stability Programme the growth rate of government expenditure, taking into account discretionary revenue measures, is in line with the expenditure benchmark of the Stability and Growth Pact in the outer years of the Stability Programme. Government debt would remain well below 60 % of GDP. While Slovakia passed legislation establishing the Fiscal Council, so far it has not been set up and the legislation on expenditure ceilings has not yet been adopted.

               (11)

               Given the diminishing scope for further expenditure-based consolidation and the need to support continuing convergence through expenditure in key areas such as education, innovation and transport infrastructure, there is scope for measures aimed at broadening the tax base, limiting tax avoidance and improving tax compliance, without affecting near-term growth prospects. Tackling one of the largest VAT gaps in the EU could bring significant additional revenue. There is also room for increasing receipts from taxes that are least harmful to growth, including real estate taxation, and environmental taxation. Effective taxation of labour income varies according to different types of employment. This encourages a shift towards more flexible job arrangements with negative short- and long-term impacts on public accounts.

               (12)

               Slovakia has only partially addressed the long-term sustainability of its public finances, as it has not implemented the envisaged changes to the pay-as-you-go pillar of its pension system. Measures were taken to enhance the viability of the fully funded pension pillar. However, an unstable legal environment with frequent significant changes in the past entailed non-negligible adjustment costs and introduced uncertainty in the fully funded pillar.

               (13)

               No significant measures have been taken to address Slovakia’s unemployment problem. There is still a need to improve the effectiveness of active labour market policies and the capacity of the public employment service. There is also a need for measures to increase the labour market participation of older workers and women, in particular through childcare provision. The tax wedge, including all compulsory payments, remains relatively high for low-income workers and a proportion of jobseekers have little incentive to move from social assistance to a low-paid job.

               (14)

               Only limited measures were adopted to improve the low quality of the education and training system. To tackle Slovakia’s high youth unemployment, the youth action plan should be adopted and implemented without delay, in line with the outcome of the Slovakia-Commission joint action team on youth unemployment, including the reform of vocational education and training as well as higher education. An updated strategy on lifelong learning was adopted. However, no particular incentives were introduced to ensure higher participation rates.

               (15)

               Marginalised communities, including the Roma, are largely excluded from the labour market and the mainstream education system, representing a significant underutilised labour potential in the Slovak economy. In order to tackle this problem, Slovakia should step up efforts to improve educational outcomes of marginalised groups and reinforce its reintegration policies for adults.

               (16)

               Slovakia has substantially enhanced the transparency of public procurement rules and of the judiciary, although judicial proceeding remains long and costly. However, the overall quality and capacity of public institutions remains weak. The public administration lacks a strategic approach, suffers from high turnover of staff and insufficient capacity building, which hampers policy development and the implementation and delivery of public services.

               (17)

               Slovakia has made a number of commitments under the Euro Plus Pact. The commitments, and the implementation of the commitments presented in 2011, relate to fostering employment, improving competitiveness, enhancing sustainability of public finances and reinforcing financial stability. The Commission has assessed the implementation of the Euro Plus Pact commitments. The results of this assessment have been taken into account in the recommendations.

               (18)

               In the context of the European Semester, the Commission has carried out a comprehensive analysis of Slovakia’s economic policy. It has assessed the Stability Programme and National Reform Programme. 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 reinforce the overall economic governance of the Union by providing EU-level input into future national decisions. Its recommendations under the European Semester are reflected in recommendations (1) to (7) below.

               (19)

               In the light of this assessment, the Council has examined the Stability Programme, and its opinion (6) is reflected in particular in recommendation (1) below,

         HEREBY RECOMMENDS that Slovakia take action within the period 2012-2013 to:

               1.

               Take additional measures in 2012 and specify the necessary measures in 2013, to correct the excessive deficit in a sustainable manner and ensure the structural adjustment effort specified in the Council recommendations under the excessive deficit procedure. Implement targeted spending cuts, while safeguarding growth-enhancing expenditure, and step up efforts to improve the efficiency of public spending. Thereafter, ensure an adequate structural adjustment effort to make sufficient progress towards the MTO, including meeting the expenditure benchmark. Accelerate the setting up of the Fiscal Council and adopt rules on expenditure ceilings.

               2.

               Increase tax compliance, in particular by improving the efficiency of VAT collection; reduce distortions in taxation of labour across different employment types, also by limiting tax deductions; link real estate taxation to the market value of property; make greater use of environmental taxation.

               3.

               Further adjust the pay-as-you-go pension pillar, mainly by changing the indexation mechanism, introducing a direct link between the statutory retirement age and life expectancy and introducing a sustainability factor in the pension calculation formula reflecting demographic change. Ensure the stability and viability also of the fully funded pillar.

               4.

               Enhance the administrative capacity of public employment services with a view to improving the targeting, design and evaluation of active labour market policies to ensure more individualised employment services for the young, the long-term unemployed, older workers and women. Ensure the provision of childcare facilities. Reduce the tax wedge for low-paid workers and adapt the benefit system.

               5.

               Adopt and implement the youth action plan, in particular as regards the quality and labour market relevance of education and vocational training, including through the introduction of an apprenticeship scheme. Improve the quality of higher education by strengthening quality assurance and result orientation.

               6.

               Take active measures to improve access to and quality of schooling and pre-school education of vulnerable groups, including Roma. Ensure labour market reintegration of adults through activation measures and targeted employment services, second-chance education and short-cycle vocational training.

               7.

               Strengthen the quality of the public service, including by improving management of human resources and strengthening analytical capacities. Further shorten the length of judicial proceedings and strengthen the role of the Public Procurement office as an independent body.

      Done at Brussels, 10 July 2012.

            For the Council

            The President

         V. SHIARLY

      (1)  OJ L 209, 2.8.1997, p. 1.

      (2)  Maintained for 2012 by Council Decision 2012/238/EU of 26 April 2012 on guidelines for the employment policies of the Member States (OJ L 119, 4.5.2012, p. 47).

      (3)  OJ C 272, 15.9.2011, p. 1.

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

      (5)  Cyclically-adjusted balance net of one-off and temporary measures, recalculated by the Commission services on the basis of the information provided in the Programme, using the commonly agreed methodology.

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


Important legal notice

|

52008SC0573

Recommendation for a Council Decision abrogating Decision 2005/730/EC on the existence of an excessive deficit in Portugal  /* SEC/2008/0573 final */

         EN
            (...PICT...)|COMMISSION OF THE EUROPEAN COMMUNITIES|
            Brussels, 7.5.2008
            SEC(2008) 573 final

            Recommendation for a
            COUNCIL DECISION
            abrogating Decision 2005/730/EC on the existence of an excessive deficit in Portugal
            (presented by the Commission)
            EXPLANATORY MEMORANDUM
            1. Background
            Article 104 of the Treaty establishes that Member States should avoid excessive deficits and lays down a procedure for their identification and correction. The excessive deficit procedure (EDP) is further specified in Council Regulation (EC) No 1467/97 on “speeding up and clarifying the implementation of the excessive deficit procedure” OJ L 209, 2.8.1997, p. 6. Regulation as amended by Regulation (EC) No 1056/2005 (OJ L 174, 7.7.2005, p. 5). , which is part of the Stability and Growth Pact. According to Article 104(2) of the Treaty, the Commission has to monitor compliance with budgetary discipline on the basis of  two criteria, namely: (a) whether the planned or actual government deficit exceeds the reference value of 3% of GDP (unless either the deficit ratio has declined substantially and continuously and reached a level that comes close to the reference value; or, alternatively, the excess over the reference value is only exceptional and temporary and the ratio remains close to the reference value); and (b) whether government debt exceeds the reference value of 60% of GDP (unless the debt ratio is sufficiently diminishing and approaching the reference value at a satisfactory pace).[1]
            OJ L 209, 2.8.1997, p. 6. Regulation as amended by Regulation (EC) No 1056/2005 (OJ L 174, 7.7.2005, p. 5).
            In accordance with the Protocol on the excessive deficit procedure annexed to the Treaty, the Commission provides the data for the implementation of the EDP. As part of the application of this Protocol, Member States have to notify data on government deficits and debt and other associated variables twice a year, namely before 1 April and before 1 October, in accordance with Article 4 of Council Regulation (EC) No 3605/93 OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Regulation (EC) No 2103/2005 (OJ L 337, 22.12.2005, p. 1). , The most recent notification of Portugal can be found at: http://epp.eurostat.ec.europa.eu/portal/page?_pageid=2373,58110711&_dad=portal&_schema=portal . .[2][3]
            OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Regulation (EC) No 2103/2005 (OJ L 337, 22.12.2005, p. 1).
            The most recent notification of Portugal can be found at:
            http://epp.eurostat.ec.europa.eu/portal/page?_pageid=2373,58110711&_dad=portal&_schema=portal .
            On 22 June 2005, the Commission initiated the EDP for Portugal with the adoption of a report under Article 104(3), based on a planned general government deficit of 6.2% of GDP and an expected government debt of 66.5% of GDP in 2005 after being above the 60% of GDP reference value already in 2003 and 2004, as revealed in the June 2005 update of the stability programme of Portugal SEC(2005) 836. . On 20 September 2005, the Council decided, on a recommendation from the Commission, that Portugal was in excessive deficit according to Article 104(6) OJ L 274, 20.10.2005, p. 91. . At the same time, and also based on a Commission recommendation, the Council addressed recommendations under Article 104(7) to Portugal with a view to bringing the situation of an excessive government deficit to an end, by 2008 at the latest All EDP related documents for Portugal can be found at the following website: http://ec.europa.eu/economy_finance/sg_pact_fiscal_policy/excessive_deficit9109_en.htm. .[4][5][6]
            SEC(2005) 836.
            OJ L 274, 20.10.2005, p. 91.
            All EDP related documents for Portugal can be found at the following website: http://ec.europa.eu/economy_finance/sg_pact_fiscal_policy/excessive_deficit9109_en.htm.
            In its recommendation under Article 104(7), the Council recommended that "The Portuguese authorities should bring the general government deficit below 3% of GDP in a credible and sustainable manner by 2008 at the latest by taking action in a medium-term framework. Specifically, to this end, the Portuguese authorities should: limit the deterioration of the fiscal position in 2005, by ensuring a rigorous implementation of the announced corrective measures; thoroughly implement the necessary measures to ensure a sustained and marked correction of the cyclically-adjusted deficit, excluding one-off and other temporary measures, by taking a very substantial step of a reduction of 1,5% of GDP in 2006 from 2005, followed by a further significant decrease of, at least, ¾% of GDP in each of the two subsequent years; rapidly implement reforms to contain and reduce expenditure over the coming years; seize any opportunity to accelerate the reduction of the budget deficit, and stand ready to adopt the additional measures which may be necessary to achieve the correction of the excessive deficit by 2008". The Council also recommended that "The Portuguese authorities should ensure that the government gross debt ratio is brought onto a firm downward path and approaches the reference value at a satisfactory pace by ensuring that debt developments reflect progress in the reduction of the deficit, by avoiding debt-increasing financial transactions, and by considering carefully the possible impact on debt of major public investment projects, including those in partnership with the private sector;" The Council required the Portuguese authorities to "further improve the collection and processing of general government data".
            In addition, the Council invited the Portuguese authorities "to ensure that budgetary consolidation towards the medium term position of government finances close to balance or in surplus is sustained through a reduction in the cyclically-adjusted deficit, net of one-offs and other temporary measures, by at least 0,5% of GDP per year after the excessive deficit has been corrected".
            Table 1: Adjustment endorsed by the Council on 20 September 2005
            % of GDP, unless indicated otherwise|2005|2006|2007|2008|
            General government balancechange in structural balancep.m.: Real GDP growth (%)|deficit of (at most) 6.20.8|-4.8+1.51.4|deficit < 4+¾ (at least)2.2|deficit < 3+¾ (at least)2.6|
            Note : structural balance = cyclically-adjusted balance excluding one-off and other temporary measures
            Source : Council recommendation under Article 104(7), quoting the June 2005 update of the stability programme
            On 22 June 2006, i.e. after the expiry of the 6-months deadline for taking action set in the Council recommendation, the Commission carried out an assessment of the action taken by the Portuguese authorities with a view to bringing the situation of excessive government deficit to an end. On that basis, it adopted a communication to the Council, which concluded that Portugal had taken action representing adequate progress towards the correction of the excessive deficit within the time limits set by the Council and that no further steps in the excessive deficit procedure of Portugal were necessary at that time SEC(2006) 786. . In its meeting of 11 July 2006, the Council concurred with this assessment.[7]
            SEC(2006) 786.
            According to Article 104(12), a Council decision on the existence of an excessive deficit is to be abrogated on the basis of a Commission recommendation, when the excessive deficit in the Member State concerned has, in the view of the Council, been corrected.
            2. Recent deficit developments
            Data provided by the Commission (Eurostat) following the reporting by Portugal before 1 April 2008 ,  indicate that the general government deficit in 2007 represented 2.6% of GDP Eurostat News Release No 54 of 18 April 2008. , which follows government deficit outturns of 6.1% of GDP in 2005 and 3.9% of GDP in 2006 (see Table 2).  Given the currently reported deficit and the deficit reference value, the probability that any future revision raises the 2007 government deficit ratio to in excess of 3% of GDP is low Deficit ratios are usually revised - upwards or downwards - after the publication of the first outcome in the spring notification. For the EU Member States as a whole, the revisions are usually relatively small and on average insignificantly different from zero. In the case of Portugal, upward revisions in the deficit ratio have been relatively more frequent than downward revisions; this might suggest that a bias exists in the compilation of the first outcomes. However, and even if future revisions in the Portuguese government accounts cannot be excluded, data for the latest years have shown to be more reliable than in the past.  .[8][9]
            Eurostat News Release No 54 of 18 April 2008.
            Deficit ratios are usually revised - upwards or downwards - after the publication of the first outcome in the spring notification. For the EU Member States as a whole, the revisions are usually relatively small and on average insignificantly different from zero. In the case of Portugal, upward revisions in the deficit ratio have been relatively more frequent than downward revisions; this might suggest that a bias exists in the compilation of the first outcomes. However, and even if future revisions in the Portuguese government accounts cannot be excluded, data for the latest years have shown to be more reliable than in the past.
            The recent government deficit path materialised against low but gradually improving economic growth, with real GDP growth rates moving from 0.9% in 2005 to 1.3% in 2006 and 1.9% in 2007. The negative output gap is estimated to have narrowed somewhat over the same period.
            The budgetary execution in 2006 and 2007 was better than targeted at the time the recommendation under Article 104(7) was issued When compared with the fiscal targets presented in the June 2005 update of the stability programme of Portugal, on the basis of which the present excessive deficit procedure was initiated, as described in Section 1. . Notably, deficit outturns in those two years were about 1 percentage point of GDP lower than originally planned in the June 2005 update of the stability programme of Portugal Revisions in late 2005 and early 2006 of the GDP data series have resulted in higher GDP levels, which mechanically have yielded a deficit ratio level reduction by about ¼ percentage point of GDP. . The 2007 budgetary outturn also compares with an estimate of 3% of GDP presented in the December 2007 update of the stability programme of Portugal. In all, a government deficit below the 3% of GDP reference value was achieved one year before the deadline set by the Council. Indeed, as urged by the Council in its recommendation under Article 104(7), the opportunity to accelerate the reduction of the budget deficit was used, essentially by locking in better-than-expected revenue collection.[10][11]
            When compared with the fiscal targets presented in the June 2005 update of the stability programme of Portugal, on the basis of which the present excessive deficit procedure was initiated, as described in Section 1.
            Revisions in late 2005 and early 2006 of the GDP data series have resulted in higher GDP levels, which mechanically have yielded a deficit ratio level reduction by about ¼ percentage point of GDP.
            The narrowing of the fiscal deficit achieved in 2006 and 2007 owes to both a falling government expenditure-to-GDP ratio and a rising revenue-to-GDP ratio. The expenditure ratio declined by about 1¼ percentage points of GDP in 2006 and almost ½ percentage point of GDP in 2007. In parallel, government revenue ratio increased by some ¾ percentage point of GDP in both 2006 and 2007. Fiscal consolidation hinged mainly upon structural measures, with a marginal contribution from a one-off operation worth 0.1% of GDP in 2007 Related to the long-term concession contract for the exploitation of a dam and recorded as reduction of other capital expenditure according to the ESA95 rules. .[12]
            Related to the long-term concession contract for the exploitation of a dam and recorded as reduction of other capital expenditure according to the ESA95 rules.
            On the expenditure side, a stabilisation of current primary expenditure materialised in real terms in both 2006 and 2007. In particular, reductions of compensation of government employees were crucial for the observed expenditure containment on the back of reductions in public employment and, to a lesser extent, through wage restraint coming from below-inflation annual wage updates and a freeze of seniority-related pay increases. At the same time, social transfers other than in kind decelerated somewhat from the very high growth rates of previous years. To that result contributed a slowdown in old-age pension outlays, mainly on the back of more contained retirement flows, and, in 2007, a shrink in unemployment benefits. A reduction in public investment contributed further to the expenditure curb and a subsequent deficit reduction of about ½% of GDP in 2006. Overall, these figures are in line with the Council recommendation to implement measures to contain expenditure, an example of which was the reform of old-age pension schemes.
            On the revenue side, tax proceeds expanded at a quick pace, especially given the context of low economic growth (and, more specifically, of domestic demand). That seems to have been the result of an increase in the VAT standard rate by 2 percentage points (to 21% from 19%) in July 2005, discretionary measures to increase the rates of some taxes (excise taxes, social contribution rate for some workers categories, new marginal personal income tax rate for high incomes) and lower credits on some direct taxes. Furthermore, an important part of the tax buoyancy can be ascribed to gains coming from improved tax administration and compliance that seem to have resulted into enlargement of the tax bases, which to a large extent have been carried forward. In addition, the more efficient tax administration has allowed higher rates of success in collecting tax arrears. In 2007, additional tax revenue came from a recovery of profitability of some large corporate tax payers and from taxes on real-estate wealth. Other revenue (including sales of goods and services by the government) grew by almost ½ percentage point of GDP in accumulated terms in 2006 and 2007. To some extent, that was also the result of a recovery from the shortfall in dividend payments to the government by state-owned enterprises observed in 2005.
            The budgetary and economic developments described above led to a significant reduction of the structural deficit (i.e., the cyclically-adjusted deficit net of one-off and other temporary measures) in 2006 and 2007. In the former year, a reduction of some 2 percentage points of GDP was achieved, followed by a further decline by about 1 percentage point of GDP in the latter (see Table 2). These results seem to have gone well beyond the Council recommendation under Article 104(7) asking for a reduction of the structural balance by 1.5% of GDP in 2006 from 2005 and, at least, ¾% of GDP in 2007.
            3. Deficit projections for 2008 and beyond
            According to the Commission services’ spring 2008 economic forecasts, with a projected real GDP growth of 1.7%, the general government deficit is expected to decline to 2.2% of GDP in 2008. This forecast compares with a budgetary target of 2.4% of GDP set in the December 2007 update of the stability programme of Portugal (with real GDP growth assumed to come at 2.2%) and with a revised target of 2.2% of GDP, as announced on 26 March after the publication of the 2007 budgetary outcome.
            The projected improvement of the fiscal balance in 2008 is mainly driven by revenue. In 2008, overall tax receipts are projected to continue increasing faster than nominal GDP, albeit clearly by a lower margin than in 2007. Indeed, tax elasticities are expected to start moving closer to their historical average after the high figures of recent years, reflecting also the assumption that marginal gains of improved tax administration and compliance may enter a declining phase. In 2008, tax revenue will benefit from a normalisation in VAT net revenues after the reduction in the maximum reimbursement period implemented in 2006 and 2007. However, the reduction in the VAT standard rate by 1 percentage point (from 21% to 20%) as from 1 July 2008 will dampen tax revenues. In addition, other government revenue is projected to increase somewhat as a share of GDP thanks to rising EU funds, in the context of the implementation of the new National Strategic Reference Framework Concomitantly, these inflows will also imply additional spending, consequently mitigating considerably the impact of those receipts on the overall budget balance. . The expenditure-to-GDP ratio is forecast to remain stable. In particular, personnel expenditure is expected to fall in terms of GDP by about 0.4 percentage point on account of wage moderation and declining employment in central government. Interest expenditure will be curbed as the result of a discretionary reduction in the interest rate structure of government-issued savings certificates as from early 2008. Granting of concessions of electricity-generating dams by the government will post a one-off deficit-reducing contribution of almost 0.2% of GDP Recorded as reduction of other capital expenditure according to the ESA95 rules, but part of the operation's proceed is used to pay to electricity-generating companies compensation for only gradually reflecting on consumer prices the production prices. .[13][14]
            Concomitantly, these inflows will also imply additional spending, consequently mitigating considerably the impact of those receipts on the overall budget balance.
            Recorded as reduction of other capital expenditure according to the ESA95 rules, but part of the operation's proceed is used to pay to electricity-generating companies compensation for only gradually reflecting on consumer prices the production prices.
            Under the assumption of unchanged policies, the Commission services spring 2008 economic forecasts projects a government deficit of 2.6% of GDP in 2009 against an assumption of real GDP growth of 1.6% of GDP. The December 2007 update of the stability programme of Portugal set the 2009 budgetary target at 1.5% of GDP, against an assumed real GDP growth of 2.8%. According to the Commission services spring 2008 economic forecasts, the evolution in the fiscal balance is expected to be driven mainly by a falling tax burden, reflecting still the impact of the reduction in the VAT standard rate in July 2008. In addition, important macroeconomic bases for tax revenue such as household consumption and compensation of employees are projected to track behind GDP, while tax revenue is assumed to, unlike in previous years, evolve in line with the relevant tax bases. Therefore, it is assumed that the enlargement of the tax bases mentioned in Section 2 has been essentially of a permanent nature. However, should part of those gains show ex-post a more temporary or non-sustainable nature or be hurt by the economic slowdown, the budgetary outlook would be gloomier. The discontinuation of the one-off operation implemented in 2008 will drive the nominal deficit further up. The current backdrop of higher-than-usual uncertain about financial and economic developments creates a number of risks to public finances.
            According to the Commission services spring 2008 economic forecasts, the structural balance is expected to improve by a ¼ percentage point of GDP in 2008. At unchanged policies, a worsening by ¼ percentage point of GDP is projected for 2009. On this basis, a substantial step towards fiscal consolidation with the 2008 budgetary execution and an ambitious 2009 budget are required to ensure compliance with the Council recommendations under Article 104(7) for further reductions of the structural balance towards a medium-term position close to balance or in surplus by at least 0.5% of GDP per year after the excessive deficit had been corrected.
            The December 2007 update of the stability programme of Portugal set deficit targets of 0.4% of GDP in 2010 and 0.2% of GDP in 2011. These plans have to be seen against the assumed backdrop of real GDP growth rates of 3% in both years. In its Opinion on the programme update, the Council considered that the "budgetary stance in the programme may not be sufficient to ensure that the Medium-term Objective of a structural deficit of 0.5% of GDP is achieved by 2010, as envisaged in the programme. Although the planned pace of consolidation towards the MTO is in line with the Stability and Growth Pact, the adjustment may require additional efforts in view of the risks (…)" OJ C 73, 19.3.2008, p. 6.  .[15]
            OJ C 73, 19.3.2008, p. 6.
            4. Debt developments and projections
            The government gross debt ratio exceeded the 60% of GDP reference value in 2005 when it jumped to 63.6% of GDP from 56.9% of GDP in 2004 The differences in these debt figures and the ones estimated at the time of initiating the excessive deficit procedure reflect mainly the revisions in the GDP data mentioned in footnote 11. . In 2006, the debt ratio went further up to 64.7% of GDP in 2006 and fell back to 63.6% of GDP in 2007. The increase in the government debt ratio recorded in 2006 was the result of the high primary government deficit and, to a lesser extent, of the fact that the implicit interest rate on government debt exceeded nominal GDP growth (the so-called "snow-ball effect"). In 2007, the debt ratio decline was mainly due to a debt-reducing stock-flow adjustment. To a lesser extent, the acceleration of GDP and a marginal primary surplus gave additional help to the debt ratio fall.[16]
            The differences in these debt figures and the ones estimated at the time of initiating the excessive deficit procedure reflect mainly the revisions in the GDP data mentioned in footnote 11.
            To the extent that the debt ratio declined in 2007, the observed government debt path has been consistent with the Council recommendation under Article 104(7) of 20 September 2005. In addition, in 2006 and 2007, financial operations as a whole have contributed to a negative stock-flow adjustment and therefore helped the reduction of the government debt ratio: in 2006, large privatisation proceeds were key for the decline in financial assets; in 2007, a reduction in deposits and currency was pivotal to the further decline in financial assets and a subsequent debt-decreasing stock-flow adjustment. Excluding deposits and currency and privatisation proceeds, the net acquisition of financial assets remained positive in 2006 and 2007, consequently adding to the debt ratio.
            According to the Commission services spring 2008 economic forecasts, the government debt ratio is expected to rebound marginally to over 64% of GDP in 2008 and, on the basis of the no-policy change assumption, to come at 64¼% of GDP in 2009. These developments have to be seen against a backdrop of low nominal GDP growth and still relatively high government deficits this year and the next. In 2008, on the basis of the plans outlined in the December 2007 update of the stability programme of Portugal, the debt ratio is expected to reflect a positive stock-flow adjustment corresponding to 0.4% of GDP That seems to be owed to a positive difference between accrual-based and cash-based deficits, as implicit in the programme update. The stock-flow adjustment figures were adjusted to reflect the more recent classification by the Portuguese authorities of some capital injections in some government- owned hospitals as capital transfers instead of financial operations. . Further pressure to the stock-flow adjustment is given by the assumption that redemptions of debt above its face value will increase sizeably in the near future as the result of changes in the remuneration of savings certificates introduced in January 2008. Overall, the debt ratio path is consistent with the Council recommendation under Article 104(7) in the sense that its evolution reflects progress in the reduction of the deficit and that, between 2006 and 2009 on average, financial operations do not add to the debt ratio. [17]
            That seems to be owed to a positive difference between accrual-based and cash-based deficits, as implicit in the programme update. The stock-flow adjustment figures were adjusted to reflect the more recent classification by the Portuguese authorities of some capital injections in some government- owned hospitals as capital transfers instead of financial operations.
            5. Other considerations
            Under Article 104(7), the Council recommended Portugal to improve the collection and processing of general government data, given the apparent deficiencies in the compilation of reliable public finance statistics.
            In the latest number of years there have been institutional changes and other technical improvements in the compilation of the Portuguese government accounts. These include a enhanced cooperation as well as a clearer labour division between the National Statistical Office, the Finance Ministry and the central bank, with an increase in the resources, responsibility and accountability of the Statistical Office. Notably, in early 2006 an agreement was signed between those three institutions, foreseeing cooperation among them, and creating two working groups to analyse the government accounts before each fiscal notification and to discuss methodological issues ‘Acordo de Cooperação Institucional no Domínio das Estatísticas das Administrações Públicas’ (Institutional Cooperation Agreement in the Field of General Government Statistics); English version available at  http://www.dgo.pt/FP/StatisticsAgreement_INE_BP_DGO.pdf .  See also ‘Consolidated Inventory of sources and methods [for EDP statistics]’, available at: http://epp.eurostat.ec.europa.eu/pls/portal/docs/PAGE/PGP_DS_GFS/PGE_DS_GFS_11/EDPI_PT_2007_REV1.PDF. . Those changes are expected to contribute to the quality of government sector statistics. The compilation and publication of quarterly government accounts should also contribute to the reliability and overall quality of annual accounts, as transactions that require specific accounting treatment will be identified earlier. Timely reporting of data by government subsectors seems to have been enforced more actively; in addition, information on budgetary execution has been made more detailed and more timely available. As a result, data for the latest years have shown to be more reliable than in the past. All in all, these developments indicate compliance with the Council recommendation.[18]
            ‘Acordo de Cooperação Institucional no Domínio das Estatísticas das Administrações Públicas’ (Institutional Cooperation Agreement in the Field of General Government Statistics); English version available at  http://www.dgo.pt/FP/StatisticsAgreement_INE_BP_DGO.pdf .  See also ‘Consolidated Inventory of sources and methods [for EDP statistics]’, available at: http://epp.eurostat.ec.europa.eu/pls/portal/docs/PAGE/PGP_DS_GFS/PGE_DS_GFS_11/EDPI_PT_2007_REV1.PDF.
            6. Conclusions
            The general government deficit declined significantly from 6.1% of GDP in 2005 to 3.9% of GDP in 2006 and to 2.6% of GDP in 2007, below the 3% of GDP reference value. The measures underlying the deficit reduction have been mostly of a permanent nature. The structural balance, i.e. the cyclically-adjusted balance net of one-off and other temporary measures, improved by some 2 percentage points of GDP in 2006 and a further 1 percentage point of GDP in 2007, thereby well beyond the fiscal efforts recommended by the Council of 1.5% of GDP in 2006 and of, at least, ¾% of GDP in 2007. According to the Commission services’ spring 2008 forecasts, the headline deficit is expected to narrow to 2.2% of GDP in 2008 (including one-offs amounting to almost 0.2% of GDP, without which the deficit would nonetheless still be below 3% of GDP). On a no-policy change basis, the deficit is projected to rise to 2.6% of GDP in 2009. This indicates that the deficit has been brought below the 3% of GDP ceiling in a credible and sustainable manner.
            General government gross debt declined to 63.6% of GDP in 2007 from 64.7% of GDP in 2006. According to the Commission services’ spring 2008 forecasts, debt is expected to bounce back slightly to some 64% of GDP in 2008 and to 64¼% of GDP by 2009, the latter on a no-policy change basis, against a backdrop of low GDP growth rates and still relatively high government deficits.
            From an overall assessment, it follows that the excessive deficit situation in Portugal has been corrected. Accordingly, the Commission recommends to the Council to abrogate its decision on the existence of an excessive deficit in Portugal.
            Table 2: Budgetary developments, 2005-2009
            % of GDP, unless indicated otherwise|2005|2006|2007|2008|2009|
            ||||COM|SP (2)|COM (3)|SP (2)|
            General government balance|-6.1|-3.9|-2.6|-2.2|-2.4|-2.6|-1.5|
            |||||(-2.2)|||
            - Total revenue|41.6|42.4|43.1|43.6|42.7|43.3|42.8|
            - Total expenditure|47.7|46.3|45.7|45.7|45.1|45.9|44.4|
            Of which :|- interest expenditure|2.6|2.8|2.8|2.8|2.9|2.7|2.8|
            |- gross fixed capital formation|2.9|2.3|2.4|2.4|2.2|2.4|2.3|
            Primary balance|-3.5|-1.1|0.2|0.6|0.5|0.1|1.3|
            One-off and temporary measures|-0.1|0.0|0.1|0.2|0.0|0.0|0.0|
            Structural balance (1)|-5.2|-3.2|-2.2|-1.9|-1.6|-2.2|-1.0|
            Structural primary balance (1)|-2.6|-0.4|0.6|0.8|1.3|0.6|1.8|
            Government gross debt (4)|63.6|64.7|63.6|64.1|64.1|64.3|62.5|
            Change in debt ratio (a) = (b) + (c) + (d)  (5)|5.3|1.1|-1.1|0.5|-0.3|0.2|-1.6|
            Contributions:|- primary balance (b)|3.5|1.1|-0.1|-0.6|-0.5|-0.1|-1.3|
            |- “snow-ball” effect (c)|0.7|0.3|-0.2|0.4|-0.1|0.3|-0.4|
            |- stock-flow adjustment (d)|1.1|-0.2|-0.8|0.7|0.4|0.0|0.0|
            Pm Real GDP growth (%)|0.9|1.3|1.9|1.7|2.2|1.6|2.8|
            Pm Output gap (2)|-1.7|-1.6|-1.1|-1.0|-1.8|-1.0|-1.1|
            (...PICT...)(1) Cyclically-adjusted (primary) balance excluding one-off and temporary measures.(2) Cyclically-adjusted and structural balances and output gaps according to the programme as calculated by Commission services on the basis of the information in the programme.(3) No-policy change assumption.(4) The change in the gross debt ratio can be decomposed as follows:where  t  is a time subscript;  D, PD, Y  and  SF  are the stock of government debt, the primary deficit, nominal GDP and the stock-flow adjustment respectively, and  i  and  y  represent the average cost of debt and nominal GDP growth. The term in parentheses represents the “snow-ball” effect.(5) The components may not add up to the total due to rounding.Sources: Commission services’ spring 2008 forecasts (COM) and December 2007 update of the stability programme (SP). In brackets, the new official projection announced by the Portuguese authorities on 26 March 2008.|
            Recommendation for a
            COUNCIL DECISION
            abrogating Decision 2005/730/EC on the existence of an excessive deficit in Portugal
            THE COUNCIL OF THE EUROPEAN UNION,
            Having regard to the Treaty establishing the European Community, and in particular Article 104(12) thereof,
            Having regard to the recommendation from the Commission,
            Whereas:
            (1) By Council Decision 2005/730/EC OJ L 274, 20.10.2005, p. 91 , following a recommendation from the Commission in accordance with Article 104(6) of the Treaty, it was decided that an excessive deficit existed in Portugal. The Council noted that the planned general government deficit for the year 2005 was 6.2% of GDP, above the 3% of GDP Treaty reference value, while general government gross debt was expected to reach 66.5% of GDP, above the 60% of GDP Treaty reference value. [19]
            OJ L 274, 20.10.2005, p. 91
            (2) On 20 September 2005, in accordance with Article 104(7) of the Treaty and Article 3(4) of Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure OJ L 209, 2.8.1997, p. 6. Regulation as amended by Regulation (EC) No 1056/2005 (OJ L 174, 7.7.2005, p. 5). , the Council made, based on a recommendation from the Commission, a recommendation addressed to Portugal with a view to bringing the excessive deficit situation to an end by 2008 at the latest. The recommendation was made public.[20]
            OJ L 209, 2.8.1997, p. 6. Regulation as amended by Regulation (EC) No 1056/2005 (OJ L 174, 7.7.2005, p. 5).
            (3) In accordance with Article 104(12) of the Treaty, a Council Decision on the existence of an excessive deficit is to be abrogated when the excessive deficit in the Member State concerned has, in the view of the Council, been corrected.
            (4) In accordance with the Protocol on the excessive deficit procedure annexed to the Treaty, the Commission provides the data for the implementation of the procedure. As part of the application of this Protocol, Member States are to notify data on government deficits and debt and other associated variables twice a year, namely before 1 April and before 1 October, in accordance with Article 4 of Council Regulation (EC) No 3605/93 of 22 November 1993 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Regulation (EC) No 2103/2005 (OJ L 337, 22.12.2005, p. 1). .[21]
            OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Regulation (EC) No 2103/2005 (OJ L 337, 22.12.2005, p. 1).
            (5) Based on data provided by the Commission (Eurostat) in accordance with Article 8g(1) of Regulation (EC) No 3605/93 following the notification by Portugal before 1 April 2008 and on the Commission services’ spring 2008 forecasts, the following conclusions are warranted:
            – the general government deficit was reduced from 6.1% of GDP in 2005 to 3.9% of GDP in 2006 and to 2.6% of GDP in 2007, which is below the 3% of GDP deficit reference value. The latter compares with a target of 3% of GDP set in the December 2007 update of the stability programme of Portugal,
            – both a falling government expenditure-to-GDP ratio and a rising revenue-to-GDP ratio contributed to the improvement in the government balance. The expenditure ratio declined by 1¼ percentage points of GDP in 2006 and almost ½ percentage point of GDP in 2007. In parallel, the government revenue ratio increased by some ¾ percentage point of GDP in both 2006 and 2007. Fiscal consolidation hinged mainly upon structural measures, with a marginal contribution from a one-off operation worth 0.1% of GDP in 2007. The improvement in the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) is estimated at 2 percentage points of GDP in 2006 and 1 percentage point of GDP in 2007, which is in line with the Council recommendation under Article 104(7) for a reduction of the structural balance by 1.5% of GDP in 2006 and, at least, ¾% of GDP in 2007,
            – for 2008, the Commission services’ spring 2008 forecasts project the deficit to be reduced further, to 2.2% of GDP, mainly driven by some additional revenue, with the budgetary execution benefiting from a 0.2% of GDP one-off deficit-reducing operation. This is broadly in line with the official deficit targets of 2.4% of GDP set in the December 2007 update of the stability programme of Portugal and the revised target of 2.2% of GDP announced by the Portuguese authorities in late March 2008. For 2009, the spring forecasts project, on a no-policy change basis, a government deficit at 2.6% of GDP. This indicates that the deficit has been brought below the 3% of GDP ceiling in a credible and sustainable manner. The structural balance is projected to improve by about ¼ percentage point of GDP in 2008 and, on a no-policy change basis, to worsen by ¼ percentage point of GDP in 2009. This has to be seen against the need to make progress towards the medium-term objective (MTO) for the budgetary position, which for Portugal is a structural deficit of 0.5% of GDP,
            – government debt declined from 64.7% of GDP in 2006 to 63.6% of GDP in 2007. The low GDP growth and still relatively high government deficits projected in the Commission services’ spring 2008 economic forecasts are expected to yield a government debt at some 64¼% of GDP in 2009.
            (6) In the view of the Council, the excessive deficit in Portugal has been corrected and Decision 2005/730/EC should therefore be abrogated.
            HAS ADOPTED THIS DECISION:
            Article 1
            From an overall assessment it follows that the excessive deficit situation in Portugal has been corrected.
            Article 2
            Decision 2005/730/EC is hereby abrogated.
            Article 3
            This Decision is addressed to the Portuguese Republic.
            Done at Brussels,
            For the Council
            The President
            [1] OJ L 209, 2.8.1997, p. 6. Regulation as amended by Regulation (EC) No 1056/2005 (OJ L 174, 7.7.2005, p. 5).
            [2] OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Regulation (EC) No 2103/2005 (OJ L 337, 22.12.2005, p. 1).
            [3] The most recent notification of Portugal can be found at: http://epp.eurostat.ec.europa.eu/portal/page?_pageid=2373,58110711&_dad=portal&_schema=portal .
            [4] SEC(2005) 836.
            [5] OJ L 274, 20.10.2005, p. 91.
            [6] All EDP related documents for Portugal can be found at the following website: http://ec.europa.eu/economy_finance/sg_pact_fiscal_policy/excessive_deficit9109_en.htm.
            [7] SEC(2006) 786.
            [8] Eurostat News Release No 54 of 18 April 2008.
            [9] Deficit ratios are usually revised - upwards or downwards - after the publication of the first outcome in the spring notification. For the EU Member States as a whole, the revisions are usually relatively small and on average insignificantly different from zero. In the case of Portugal, upward revisions in the deficit ratio have been relatively more frequent than downward revisions; this might suggest that a bias exists in the compilation of the first outcomes. However, and even if future revisions in the Portuguese government accounts cannot be excluded, data for the latest years have shown to be more reliable than in the past.
            [10] When compared with the fiscal targets presented in the June 2005 update of the stability programme of Portugal, on the basis of which the present excessive deficit procedure was initiated, as described in Section 1.
            [11] Revisions in late 2005 and early 2006 of the GDP data series have resulted in higher GDP levels, which mechanically have yielded a deficit ratio level reduction by about ¼ percentage point of GDP.
            [12] Related to the long-term concession contract for the exploitation of a dam and recorded as reduction of other capital expenditure according to the ESA95 rules.
            [13] Concomitantly, these inflows will also imply additional spending, consequently mitigating considerably the impact of those receipts on the overall budget balance.
            [14] Recorded as reduction of other capital expenditure according to the ESA95 rules, but part of the operation's proceed is used to pay to electricity-generating companies compensation for only gradually reflecting on consumer prices the production prices.
            [15] OJ C 73, 19.3.2008, p. 6.
            [16] The differences in these debt figures and the ones estimated at the time of initiating the excessive deficit procedure reflect mainly the revisions in the GDP data mentioned in footnote 11.
            [17] That seems to be owed to a positive difference between accrual-based and cash-based deficits, as implicit in the programme update. The stock-flow adjustment figures were adjusted to reflect the more recent classification by the Portuguese authorities of some capital injections in some government- owned hospitals as capital transfers instead of financial operations.
            [18] ‘Acordo de Cooperação Institucional no Domínio das Estatísticas das Administrações Públicas’ (Institutional Cooperation Agreement in the Field of General Government Statistics); English version available at  http://www.dgo.pt/FP/StatisticsAgreement_INE_BP_DGO.pdf .  See also ‘Consolidated Inventory of sources and methods [for EDP statistics]’, available at: http://epp.eurostat.ec.europa.eu/pls/portal/docs/PAGE/PGP_DS_GFS/PGE_DS_GFS_11/EDPI_PT_2007_REV1.PDF.
            [19] OJ L 274, 20.10.2005, p. 91
            [20] OJ L 209, 2.8.1997, p. 6. Regulation as amended by Regulation (EC) No 1056/2005 (OJ L 174, 7.7.2005, p. 5).
            [21] OJ L 332, 31.12.1993, p. 7. Regulation as last amended by Regulation (EC) No 2103/2005 (OJ L 337, 22.12.2005, p. 1).


title: Council Recommendation of 12 July 2016 on the 2016 National Reform Programme of Romania and delivering a Council opinion on the 2016 Convergence Programme of Romania

text:
               18.8.2016

               EN

               Official Journal of the European Union

               C 299/73

         COUNCIL RECOMMENDATION
   of 12 July 2016
   on the 2016 National Reform Programme of Romania and delivering a Council opinion on the 2016 Convergence Programme of Romania
   (2016/C 299/18)
   THE COUNCIL OF THE EUROPEAN UNION,
   Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
   Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 9(2) thereof,
   Having regard to the recommendation of the European Commission,
   Having regard to the resolutions of the European Parliament,
   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 November 2015, the Commission adopted the Annual Growth Survey, marking the start of the 2016 European Semester for economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 17-18 March 2016. On 26 November 2015, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission adopted the Alert Mechanism Report, in which it identified Romania as one of the Member States for which an in-depth review would be carried out.

               (2)

               The 2016 country report for Romania was published on 26 February 2016. It assessed Romania's progress in addressing the country-specific recommendations adopted by the Council on 14 July 2015 and Romania's progress towards its national Europe 2020 targets. It also included the in-depth review under Article 5 of Regulation (EU) No 1176/2011. On 8 March 2016, the Commission presented the results of the in-depth review. The Commission's analysis leads it to conclude that Romania is experiencing no macroeconomic imbalances.

               (3)

               On 28 April 2016, Romania submitted its 2016 National Reform Programme and its 2016 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (4)

               Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds for the 2014-2020 period. As foreseen in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (3), where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of this provision in guidelines on the application of the measures linking effectiveness of the European Structural and Investment Funds to sound economic governance.

               (5)

               The third balance-of-payments financial assistance programme (2013-2015) ended in September 2015 without any completed review. The third formal review mission (16-30 June 2015) to assess implementation of the programme's conditions has not been concluded. While some progress was achieved in several areas, current and former programme achievements were undermined in key policy areas. Post-programme surveillance started on 1 October 2015 and it will continue until at least 70 % of the loan granted under the first balance-of-payments programme has been repaid, i.e. at least until spring 2018.

               (6)

               Romania is currently in the preventive arm of the Stability and Growth Pact. In its 2016 Convergence Programme, the Government plans a deterioration of the headline balance from – 0,7 % in 2015 to – 2,9 % of GDP in 2016 and 2017. The structural balance is expected to deteriorate as well. The programme plans to depart from the medium-term budgetary objective — a structural deficit of 1 % of GDP — which had been achieved in 2014 and 2015 and does not plan to return to it within the programme period. According to the convergence programme, the government debt-to-GDP ratio is expected to remain below 40 % over the programme horizon. The macroeconomic scenario underpinning these budgetary projections is plausible for 2016 and slightly favourable for 2017. Based on the Commission 2016 spring forecast, there is a risk of a significant deviation both in 2016 and, under unchanged policies, 2017. In addition, the Commission 2016 spring forecast projects a general government deficit of 3,4 % of GDP for 2017, above the 3 %-of-GDP reference value of the Treaty. Based on its assessment of the Convergence Programme and taking into account the Commission 2016 spring forecast, the Council is of the opinion that there is a risk that Romania will not comply with the provisions of the Stability and Growth Pact. Therefore further measures will be needed to ensure compliance in 2016 and 2017.

               (7)

               The fiscal framework in Romania is sound as regards its provisions, but is not applied effectively in practice. None of the recent deficit-increasing fiscal measures was initiated and adopted as part of the standard budgetary process. In 2015, the requirement to include a Ministry of Finance-verified impact assessment for new legislative initiatives that increase public spending or reduce public revenues, to respect expenditure ceilings, and to propose compensatory measures for revenue reductions, was breached. In practice, the Fiscal Council is given very little time to react to budgetary proposals and its opinions and recommendations are not sufficiently taken into account. The 2016 Budget Law targets a fiscal deficit of 2,95 % of GDP, leading to a significant deviation from the medium-term objective. This is a departure from the national fiscal framework.

               (8)

               A number of measures are being implemented to improve tax collection and increase tax compliance. These include mandatory cash registers, strengthened cash-payment rules, a new VAT registration procedure, intensified auditing by the tax authority (ANAF) and the authority's ongoing reorganisation. However, high tax evasion and a low level of tax compliance remain a challenge. Undeclared work and under-declared earnings continue to weigh on tax revenue and distort the economy. The effectiveness of measures, including those by the Labour Inspectorate, to curb undeclared work remains limited.

               (9)

               The law on equalisation of the pensionable ages for men and women has been pending before the Parliament since 2013. Its adoption would increase the labour market participation of older women considerably, narrowing the pension gender gap and mitigating their risk of old-age poverty.

               (10)

               Labour market conditions improved in 2015. Unemployment is low and the employment rate has been increasing. Long-term unemployment is below the EU average. However, significant challenges remain, especially in relation to the high rate of young people not in employment, education or training, and there is limited outreach to activate them effectively.

               (11)

               The National Employment Agency is lagging behind in offering personalised services to jobseekers and has limited services for employers, despite mandatory referral of vacancies to the National Employment Agency. A procedure has been adopted to offer tailor-made support to the various categories of unemployed people, but has not yet been implemented. Cooperation between employment and social services is very limited, making the activation of social assistance beneficiaries even harder.

               (12)

               The minimum wage, which is among the lowest in the Union, has increased substantially since 2013 and the lack of objective criteria for its setting creates uncertainty. A tripartite working group has been set up to work on the reform of minimum wage setting, but there continues to be no clear guidelines or criteria that would take into account its impact on job creation, social conditions and competitiveness. Overall, social dialogue remains weak.

               (13)

               Romania has one of the highest risks of poverty or social exclusion in the Union. The labour market activation of people on social assistance is very limited, especially in rural areas. The social reference index, on which social benefit amounts are based, is not regularly updated in line with the economic context, which may affect the adequacy of benefits over time. The Minimum Inclusion Income Law, which is expected to improve the targeting and adequacy of benefits and the labour market activation of minimum inclusion income recipients, has been sent to the Parliament for adoption. However, several measures in the Government's ‘anti-poverty package’ aim at tackling this issue, using an integrative approach (education, health, housing, social protection, transport).

               (14)

               Romania still faces education challenges. Several strategies cover lifelong learning, vocational education and training, tertiary education and early school leaving. However, the early school leaving rate remains well above the EU average, in part due to significant implementation delays of the strategy approved in 2015. Prevention and remedial programmes are limited. Vulnerable groups such as Roma and children from poor families continue to face obstacles in accessing and completing quality education, especially in rural areas. In early childhood education and care, Romania has taken action to support the participation of disadvantaged pupils in kindergarten (3-6 year-olds). Provision of early childhood services for 0-3 year-olds remains limited. Recent legislation to extend parental leave provisions, together with insufficient work incentives, may increase barriers for the participation of women in the labour market. Participation in upper secondary vocational education and training is above the EU average, but the dropout rates remain high. The tertiary attainment rate is increasing, but the quality and labour market relevance of higher education is limited. Participation in adult education is very low.

               (15)

               Health outcomes in Romania are poor. Life expectancy at birth is well below the EU average for both men and women. Access to healthcare and over-reliance on hospital care remain major concerns. Widespread informal payments reduce access to healthcare for people with low incomes. Romania has adopted measures to improve access to healthcare for low-income pensioners and people in remote and isolated communities. A network of social and health mediators is being developed and a draft law on community services has been proposed. The deinstitutionalisation of people with disabilities remains a challenge.

               (16)

               Romania has taken action to address the low funding of the healthcare system and its inefficient use of public resources. These reforms included clearing arrears in the health sector, increasing the sustainability of pharmaceutical spending, implementing e-health solutions, improving the funding of the health system, devising a strategy to shift resources from hospital-based care towards preventive and primary care, and centralised procurement procedures. However, the lack of administrative capacity is delaying implementation of the 2014-2020 national health strategy. In particular, the efficiency of the health system is constrained by delays in streamlining the hospital sector and switching from inpatient to more cost-effective outpatient healthcare.

               (17)

               Romania's key development disparities are between urban and rural areas. Employment, social, healthcare and educational outcomes are lower in rural areas and people face much lower access to education, medical services, basic utilities, and public services due to low and fragmented local administrative capacity. Meanwhile, the socioeconomic development of rural areas is limited by underdeveloped transport infrastructure and limited public and private transport, coupled with high commuting costs and limited access to broadband infrastructure. Low added value in agriculture and a lack of economic diversification in rural areas constrain the development of a sustainable rural economy. A high proportion of the rural labour force works in subsistence or semi-subsistence agriculture associated with hidden unemployment or non-remunerated family work, low productivity and poverty. An anti-poverty package, to be financed mainly with EU funds, provides for an integrated approach to fighting poverty, including in rural areas. There are plans to set up integrated community teams, offering several integrated services to disadvantaged communities, but they have not been implemented yet.

               (18)

               The strategic framework for public administration reform has been in place since 2014, but its implementation was slow in 2015. Some key initiatives have been adopted in 2016 to increase the transparency and effectiveness of the functioning of public administration. However, the delays in adopting a general and transparent human resources management approach, in particular on recruitment/appointment, appraisal, salaries, career progression across all staff categories and training, leaves room for an arbitrary approach to key procedures and decisions. This, alongside unstable organisational structures, has a negative impact on the civil service's independence and professionalism and, therefore, on its effectiveness and efficiency. Complicated administrative procedures, an inefficient public procurement system and widespread corruption constrain the delivery of services (including e-government services), both to the public and to businesses. Strategic planning, programme budgeting, consultation practices, and evidence-based policymaking remain underused. These challenges hamper the implementation of important policies across many areas, including the effective uptake of available EU funds and other financing support.

               (19)

               State-owned enterprises dominating key economic sectors tend to underperform. These are especially prevalent in key infrastructure industries, accounting for 44 % of turnover and 77 % of employment in the energy sector and 24 % and 28 % respectively in the transport sector. Government Emergency Ordinance 109/2011 on the corporate governance of state-owned enterprises was converted into a law on 10 May 2016 with amendments that better align it with international good practices. Romania has resumed hiring professional managers to replace the interim management in several state-owned enterprises but progress has been slower than initially announced. The transparency and accountability of state-owned enterprises would benefit from accelerating the adoption of annual budgets and the approval and publication of audited annual accounts. A new privatisation law is in preparation. However, it may include provisions that conflict with corporate governance legislation. Of particular concern are likely overlaps in the responsibilities of the privatisation's special administrator and the company's management.

               (20)

               In spite of the efforts of the judicial institutions to address high-level corruption, corruption is still present in many economic sectors and involves appointed and elected officials at all levels of government as well as civil servants and employees of public institutions. Major judicial reforms are being implemented, but concerns remain about the high workload in courts, the predictability and proper enforcement of court decisions and external pressure on the judiciary. Under the Cooperation and Verification Mechanism, Romania receives recommendations in the areas of judicial reform and the fight against corruption. These areas are therefore not covered in the country-specific recommendations for Romania.

               (21)

               The soundness of the financial sector has improved. However, the sector remains vulnerable to domestic legal initiatives. The recently adopted law on debt discharge with retroactive application on the existing stock of loans may constitute a challenge for several credit institutions and lead to weaker credit activity. The law may increase risks for financial sector stability with implications for the whole economy. Other developments that may have a negative impact on banks include the proposal to convert foreign currency loans into local currency loans and some court decisions on unfair contract terms in loan contracts.

               (22)

               Insufficient or low-quality infrastructure is among the most problematic factors for doing business in Romania and represents a barrier to trade and economic development. In spite of a recent slight improvement, Romania still ranks last among its regional peers in the perceived quality of transport and communication infrastructure. Its roads and motorways network is small compared with that of its peers and the size of the country. Adoption of the transport master plan and the accompanying railway reform have been repeatedly delayed.

               (23)

               Public investment has decreased since 2008 despite ample availability of financing, especially from EU funds. This trend was reversed in 2015 but public investment is expected to slow down from 2016 onwards, since the implementation of the 2014-2020 programme has not fully started and there are not enough mature projects in the pipeline. Romania has made recent and ongoing efforts to strengthen inter-ministerial cooperation, reorganise the public procurement system and improve the planning and implementation of investment projects. Nevertheless, the preparation of public investment projects is still insufficient and remains susceptible to external influence. Project selection remains hampered by the lack of medium- to long-term planning and strategic priorities, the need to achieve an agreement between numerous decision-makers, the limited enforcement power of the Public Investment Evaluation Unit in the Ministry of Public Finance, and the lack of selection criteria in the national programme for local development.

               (24)

               In spite of significant improvements in cost competitiveness and trade performance, Romania's non-cost competitiveness remains a challenge. Structural barriers are hindering the transition to a higher value added economy and limiting Romania's ability to foster sustainable growth. The complexity of administrative procedures, the volatility of fiscal and tax policies, and the weak business environment continue to weigh on investment decisions. High tax evasion and undeclared work reduce tax revenue and distort the economy. Access to financing for small and medium-sized enterprises remains limited.

               (25)

               In the context of the European Semester, the Commission has carried out a comprehensive analysis of Romania's economic policy and published it in the 2016 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Romania in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Romania 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. The recommendations under the European Semester are reflected in recommendations (1) to (4) below.

               (26)

               In light of this assessment, the Council has examined the Convergence Programme, and its opinion (4) is reflected in particular in recommendation (1) below,

         HEREBY RECOMMENDS that Romania take action in 2016 and 2017 to:

               1.

               Limit the deviation from the medium-term budgetary objective in 2016 and achieve an annual fiscal adjustment of 0,5 % of GDP in 2017 unless the medium-term budgetary objective is respected with a lower effort. Ensure the application of the fiscal framework and strengthen further tax compliance and collection. Ensure that legislative initiatives do not undermine legal certainty and do not put at risk financial stability. If necessary, adopt measures that mitigate such risks.

               2.

               Strengthen the National Employment Agency's services to employers and jobseekers, in particular by tailoring services to jobseeker profiles, better linking them with social assistance, including social services, and reaching out to unregistered young people. Establish, in consultation with social partners, objective criteria for setting the minimum wage. Take action to prevent early school leaving and increase the provision of quality education, in particular among Roma. Adopt the equalisation of the pension age for men and women.

               3.

               Curb informal payments in the healthcare system and increase the availability of outpatient care. Strengthen the independence and transparency of human resources management in the public administration. Simplify administrative procedures for business and the public. Strengthen corporate governance of state-owned enterprises.

               4.

               Improve access to integrated public services, extend basic infrastructure and foster economic diversification, in particular in rural areas. Adopt and implement the transport master plan. Strengthen public investment project prioritisation and preparation.

      Done at Brussels, 12 July 2016.

            For the Council

            The President

         P. KAŽIMÍR

      (1)  OJ L 209, 2.8.1997, p. 1.

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

      (3)  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).

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