title: Council Recommendation of 13 July 2018 on the 2018 National Reform Programme of Austria and delivering a Council opinion on the 2018 Stability Programme of Austria

text:
               10.9.2018

               EN

               Official Journal of the European Union

               C 320/84

      COUNCIL RECOMMENDATION
      of 13 July 2018
      on the 2018 National Reform Programme of Austria and delivering a Council opinion on the 2018 Stability Programme of Austria
      (2018/C 320/19)
      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 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 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 European Semester of economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it did not identify Austria as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was endorsed by the European Council on 22 March 2018. On 14 May 2018, the Council adopted the recommendation on the economic policy of the euro area (2) (‘recommendation for the euro area’).

                  (2)

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

                  (3)

                  The 2018 country report for Austria was published on 7 March 2018. It assessed Austria's progress in addressing the country-specific recommendations adopted by the Council on 11 July 2017 (3), the follow-up given to the country-specific recommendations adopted in previous years and Austria's progress towards its national Europe 2020 targets.

                  (4)

                  Austria submitted its 2018 National Reform Programme on 25 April 2018, and its 2018 Stability Programme on 21 March 2018. To take account of their interlinkages, the two programmes have been assessed at the same time.

                  (5)

                  Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds (‘ESI Funds’) for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (4), 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 that provision in guidelines on the application of the measures linking the effectiveness of the ESI Funds to sound economic governance.

                  (6)

                  Austria is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. In its 2018 Stability Programme, the Government expects that the headline balance will improve from a deficit of 0,7 % of GDP in 2017 to a surplus of 0,4 % of GDP in 2022. The medium-term budgetary objective — a structural deficit of 0,5 % of GDP as of 2017 — is projected to be met in 2019. According to the Stability Programme, the general government debt-to-GDP ratio is expected to gradually decline from 78,1 % of GDP in 2017 to 62,2 % of GDP in 2022. The macroeconomic scenario underpinning those budgetary projections is favourable for 2018 and plausible afterwards. The main risks underlying the medium-term budgetary planning are discretionary policy measures envisaged as of 2020, such as the announced reform of the personal income tax, whose net budgetary effects are not yet fully specified.

                  (7)

                  The Stability Programme indicates that the budgetary impact of the exceptional inflow of refugees and security- related measures is significant and provides adequate evidence of the scope and nature of these additional budgetary costs. According to the Commission, the eligible additional expenditure in 2017 amounted to 0,03 % of GDP for the exceptional inflow of refugees while no further cost was incurred for security-related measures. The provisions set out in Articles 5(1) and 6(3) of Regulation (EC) No 1466/97 cater for this additional expenditure, in that the inflow of refugees as well as the severity of the terrorist threat are unusual events, their impact on Austria's public finances is significant and sustainability would not be compromised by allowing for a temporary deviation from the adjustment path towards the medium-term budgetary objective. Therefore, the required adjustment towards the medium-term budgetary objective for 2017 has been reduced to take into account additional refugee-related costs.

                  (8)

                  On 11 July 2017, the Council recommended Austria to ensure that the deviation from the medium-term budgetary objective in 2018 is limited to the allowance linked to the budgetary impact of the exceptional inflow of refugees and security-related measures. This is consistent with a maximum nominal growth rate of net primary government expenditure of 3,3 % in 2018, corresponding to an allowed deterioration in the structural balance by 0,2 % of GDP. Taking into account the granted allowances, the Commission 2018 spring forecast points to a risk of some deviation from that requirement in 2018 and over 2017 and 2018 taken together.

                  (9)

                  In 2019, Austria should achieve its medium-term budgetary objective, taking into account the allowance linked to unusual events for which a temporary deviation is granted. This is consistent with a maximum nominal growth rate of net primary government expenditure of 2,9 %, corresponding to an improvement in the structural balance by 0,3 % of GDP. Based on the Commission 2018 spring forecast, under unchanged policies, Austria would be at risk of a significant deviation from the requirement in 2019, due to the deviation over 2018 and 2019 taken together. At the same time, Austria is projected to be within a distance of 0,1 % of GDP from its medium-term objective in 2019. In addition, Austria is forecast to comply with the debt rule in 2018 and 2019. Overall, the Council is of the opinion that Austria needs to stand ready to take further measures to ensure compliance in 2018 and that the necessary measures should be taken in 2019 to comply with the provisions of the Stability and Growth Pact.

                  (10)

                  According to the 2018 Ageing Report, the projected increase in pension, healthcare and long-term care expenditures points to a medium risk to fiscal sustainability in the medium and long term. Austria's public expenditure on pensions is above the Union average (13,8 % compared to 11,2 % of GDP in 2016) and expected to increase further by 2070 (0,5 % compared to -0,2 % of GDP). Recent reforms have successfully provided incentives to retire later. However, without an increase in the statutory retirement age, the further accumulation of benefit entitlements during the extended working lifetime does not improve long-term sustainability. At 60, the statutory retirement age of women is among the lowest in the Union. The statutory retirement age of women will only gradually adjust as of 2024, achieving harmonisation with the male statutory retirement age only as of 2033. Overall, increasing the statutory retirement age and restricting early retirement would contribute to pension sustainability in an ageing demographic context.

                  (11)

                  Public healthcare expenditure is above the Union average (7 % compared to 6,8 % of GDP in 2016) and expected to increase more than the Union average (1,3 % versus 0,9 % of GDP), which would raise public healthcare expenditure to 8,3 % of GDP by 2070. Expenditure on long-term care is projected to double from 1,9 % to 3,8 % of GDP by 2070. The introduction of expenditure ceilings through the 2017 Financial Equalisation Law and the reform strengthening primary healthcare and reducing the reliance on the hospital sector have started to address the sustainability issue. The persistently high number of health insurance agencies provides an indication of potential further savings in governance and administrative costs. In addition, more effective public procurement (e.g. Union-wide tendering, the use of award criteria other than price and cross-regional tender aggregation) would help improve quality and cost-efficiency. In the area of long-term care, recent policy measures such as the decision to abolish the recourse to private assets of people to finance inpatient long-term care are expected to increase, rather than contain, expenditure.

                  (12)

                  The 2017 Financial Equalisation Law has contributed to streamlining the fiscal relations among the different levels of government by initiating task-oriented financing, simplifying the distribution of intergovernmental transfers, and assigning an own source of revenue to the States. However, despite these reform efforts, the fiscal framework continues to be opaque and the significant mismatch between expenditure and revenue-raising responsibilities persists, providing weak incentives for increasing efficiency at subnational level.

                  (13)

                  Despite the 2016 tax reform, the tax burden on labour remains high and is set to gradually increase over time if tax brackets are not indexed to inflation. Higher income earners saw a relatively large benefit from the reform compared to lower income earners, and the tax burden for low-income earners remains high. The tax reform also benefited men more than women. Sources of revenue deemed less detrimental to growth, such as recurrent property taxes, appear to be underutilised, mainly because of a largely outdated tax base. Revenues from recurrent property taxes in Austria are low, amounting to 0,2 % of GDP compared to the Union average of 1,6 % of GDP in 2016. Shifting the tax burden from labour to less detrimental sources of revenue could help address this problem.

                  (14)

                  The labour market performs well, however challenges for specific groups (e.g. women and people with a migrant background) remain. Despite an overall high employment rate for women, labour market outcomes in terms of full-time employment remain rather poor. The rate of female part-time employment (age 20-64), at 47,9 % in 2017, remains one of the highest in the Union (Union average: 31,1 %). The issues related to access to formal childcare, including in particular outside the urban area, contribute to this outcome. The high share of women in part-time work, which is largely the result of women performing important unpaid tasks such as caring for children and relatives, as well as lower hourly earnings, contribute to a persistently high gender pay gap. The latter has a direct impact on women's accumulation of pension rights, resulting in a large pension gap.

                  (15)

                  Learning outcomes for disadvantaged students have not improved. A wide performance gap remains between students with and without a migrant background. National testing in 2016 confirmed that around one-quarter of 8th grade pupils do not or only partially meet educational standards in German. Recent international testing also confirmed a widening gap in reading for those from a lower socioeconomic or migrant background. Comparing the 2012 and 2015 results of the Programme for International Student Assessment (PISA), the proportion of low achievers increased in all three core areas surveyed, i.e. mathematics, reading and science. Austrian-born pupils outperform first generation migrants by a level equivalent to almost three years of schooling.

                  (16)

                  While productivity is high in Austria, productivity growth has been lacklustre over recent years despite Austria's considerable efforts, such as by investing in R&D and improving the framework for start-ups. The remaining levers to support productivity growth relate to the digitalisation of businesses, company growth and competition in services. Austria has significant access barriers and restrictive rules on the exercise of business services and regulated professions. These include specific shareholding requirements, extensive reserved activities and interdisciplinary restrictions. Continued efforts to reduce burdens and the planned evaluation of Austria's Trade Licence Act (Gewerbeordnung) are important instruments to address this issue.

                  (17)

                  More competition in the service sector would help address Austria's challenges in spreading digital technologies and business models, in particular among micro, small and medium-sized enterprises. Digitalisation of these enterprises is particularly important in Austria as they form the backbone of the Austrian economy. Initiatives such as ‘KMU Digital’ and ‘AT: net’ and the implementation of the Digital Roadmap Austria are key. A further issue concerns the scaling-up of companies and in particular of highly innovative companies. Later stage funding, such as in the forms of venture capital and access to public capital markets for scale-ups, is a bottleneck. High-growth companies are crucial for the diffusion of new technologies and business models, including digital ones, and thus for productivity growth.

                  (18)

                  In the context of the 2018 European Semester, the Commission has carried out a comprehensive analysis of Austria's economic policy and published it in the 2018 country report. It has also assessed the 2018 Stability Programme, the 2018 National Reform Programme and the follow-up given to the recommendations addressed to Austria in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Austria but also the extent to which they comply with Union rules and guidance, given the need to strengthen the Union's overall economic governance by providing Union-level input into future national decisions.

                  (19)

                  In the light of this assessment, the Council has examined the 2018 Stability Programme and its opinion (5) is reflected in particular in recommendation (1) below,

            HEREBY RECOMMENDS that Austria take action in 2018 and 2019 to:

                  1.

                  Achieve the medium-term budgetary objective in 2019, taking into account the allowance linked to unusual events for which a temporary deviation is granted. Ensure the sustainability of the health and long-term care and the pension systems, including by increasing the statutory retirement age and by restricting early retirement. Make public services more efficient, including through aligning financing and spending responsibilities.

                  2.

                  Reduce the tax wedge, especially for low-income earners, by shifting the tax burden to sources of revenue less detrimental to growth. Improve labour market outcomes of women. Improve basic skills for disadvantaged young people and people with a migrant background. Support productivity growth by stimulating digitalisation of businesses and company growth and by reducing regulatory barriers in the service sector.

         Done at Brussels, 13 July 2018.

               For the Council

               The President

            H. LÖGER

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

         (2)  OJ C 179, 25.5.2018, p. 1.

         (3)  OJ C 261, 9.8.2017, p. 1.

         (4)  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).

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


title: Council Recommendation of 13 July 2018 on the 2018 National Reform Programme of Slovenia and delivering a Council opinion on the 2018 Stability Programme of Slovenia

text:
               10.9.2018

               EN

               Official Journal of the European Union

               C 320/103

      COUNCIL RECOMMENDATION
      of 13 July 2018
      on the 2018 National Reform Programme of Slovenia and delivering a Council opinion on the 2018 Stability Programme of Slovenia
      (2018/C 320/23)
      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 Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (2), and in particular Article 6(1) thereof,
      Having regard to the recommendation of the European Commission,
      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 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Slovenia as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was endorsed by the European Council on 22 March 2018. On 14 May 2018, the Council adopted the Recommendation on the economic policy of the euro area (3) (‘Recommendation for the euro area’).

                  (2)

                  As a Member State whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Slovenia should ensure the full and timely implementation of the Recommendation for the euro area, as reflected in the recommendations below, in particular recommendation (1).

                  (3)

                  The 2018 country report for Slovenia was published on 7 March 2018. It assessed Slovenia's progress in addressing the country-specific recommendations adopted by the Council on 11 July 2017 (4), the follow-up given to the country-specific recommendations adopted in previous years and Slovenia's progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 7 March 2018. The Commission's analysis led it to conclude that Slovenia is not experiencing macroeconomic imbalances.

                  (4)

                  Slovenia submitted its 2018 National Reform Programme on 13 April 2018 and its 2018 Stability Programme on 26 April 2018. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

                  (5)

                  Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds (‘ESI Funds’) for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (5), 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 that provision in guidelines on the application of the measures linking the effectiveness of the ESI Funds to sound economic governance.

                  (6)

                  Slovenia is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule. The 2018 Stability Programme was submitted by a caretaker Government and is based on a no-policy-change assumption. Accordingly, the Government expects that the headline surplus will improve to 0,4 % of GDP in 2018 and then reach 0,9 % of GDP in 2021. The medium-term budgetary objective — a surplus of 0,25 % of GDP — is not planned to be achieved by 2021, under a no-policy-change scenario. According to the 2018 Stability Programme, the general government debt-to-GDP ratio is expected to fall to 69,3 % of GDP in 2018 and continue to fall to 58,3 % of GDP in 2021. The macroeconomic scenario underpinning those budgetary projections is plausible.

                  (7)

                  On 11 July 2017, the Council recommended Slovenia to ensure that the nominal growth rate of net primary government expenditure (6) does not exceed 0,6 % in 2018, corresponding to an annual structural adjustment of 1,0 % of GDP. At the same time, it was stated that the assessment of the 2018 Draft Budgetary Plan and subsequent assessment of 2018 budget outcomes will need to take due account of the goal of achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of public finances. Following the Commission's assessment of the strength of the recovery in Slovenia while giving due consideration to its sustainability challenges, carried out in the context of its opinion on Slovenia's 2018 Draft Budgetary Plan, a fiscal structural effort of at least 0,6 % of GDP is required for 2018, without any additional margin of deviation over one year. This corresponds to a nominal rate of growth of net primary government expenditure not exceeding 1,5 %. Taking that into account in the overall assessment, based on the Commission 2018 spring forecast, there is a risk of a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2018.

                  (8)

                  In 2019, in view of Slovenia's general government debt ratio above 60 % of GDP and projected positive output gap of 4,1 % of GDP, the nominal growth rate of net primary government expenditure should not exceed 2,2 %, in line with the structural adjustment of 1,0 % of GDP stemming from the commonly agreed adjustment matrix of requirements under the Stability and Growth Pact. At the same time, there are strong signs that the idle capacity in the economy is underestimated, with inflation expected to reach 2 % in 2019, underemployment above the pre-crisis level and investment picking up following a strong contraction over the crisis years. In addition, the plausibility tool also indicates that there is a high degree of uncertainty surrounding the output gap estimates based on the common methodology. On that basis, an annual structural adjustment of 0,65 % of GDP, corresponding to a maximum growth rate of net primary government expenditure of 3,1 %, appears appropriate. Under unchanged policies, there is a risk of a significant deviation from that requirement in 2019 and for 2018 and 2019 taken together. Slovenia is forecast to comply with the transitional debt rule in 2018 and the debt rule in 2019. Overall, the Council is of the opinion that the necessary measures should be taken as of 2018 to comply with the provisions of the Stability and Growth Pact.

                  (9)

                  The Government has presented proposals to reform the healthcare system. The draft Healthcare and Health Insurance Act, which is the central piece of the reform and will ensure the financing of the health system in the long term, was put to the Economic and Social Council for consultation in December 2017 but was not adopted before the elections, making its prospects for adoption uncertain. A draft Long-Term Care Act is currently being drawn up to make long-term care a new pillar of social security complementary to other social security systems (healthcare, social care, and pension security). It remains uncertain how Slovenia will increase cost-effectiveness, accessibility and quality of care in the future. In 2017, proposals to amend the Medical Practitioners Act, the Health Services Act, the Patient Rights Act and the Act Determining Intervention Measures to Ensure the Financial Stability of Public Healthcare Institutions were adopted and now have to be implemented to ensure accessibility and quality care. Initial steps have been taken to implement the National Health Care Plan for 2016-2025. Family medicine outpatient clinics are gradually being introduced, a health technology assessment system is planned to be established by 2020 and eHealth solutions will improve monitoring nationwide. In addition, the benefits from better coordinated public procurement in healthcare are expected to help procurement to become more cost-efficient.

                  (10)

                  In July 2017, the Economic and Social Council unanimously adopted a document called ‘Starting points for the modernisation of the Pension and Disability Insurance System in the Republic of Slovenia’. It outlines various measures on how adequate pensions and a sustainable and transparent pension system could be achieved. However, a concrete action plan to adopt those measures is still missing and despite an agreement between social partners and the Government to adopt the reform by 2020, the phase-in period for the reform has not yet been outlined. Challenges remain in: ensuring the long-term sustainability and adequacy of the pension system by adjusting the statutory retirement age and promoting later retirement; boosting the coverage of the supplementary pension schemes; appropriately addressing changing career paths and reducing old-age poverty risks.

                  (11)

                  Economic growth continued and labour market and social trends improved further. The rate of people at risk of poverty or social exclusion decreased but remains above the Union average for the elderly, and in particular for women. Employment continued to rise and unemployment further decreased. However, there are signs of labour shortages in a number of vocational occupations. Long-term unemployment remains above pre-crisis levels and still represents almost half of all unemployment. Challenges persist in particular for older workers as their activity and employment rates remain among the lowest in the Union. Slovenia's society is ageing rapidly which means the working-age population and labour supply are shrinking. In response to this trend, the government has prepared an ‘Active Ageing Strategy’, but concrete action plans are still lacking.

                  (12)

                  The ageing population emphasises the need to increase participation in adult learning which has been falling since 2010 and is especially low among low-skilled and older workers. Improving skills through lifelong learning would increase the chances of employment, especially for low-skilled and older workers. The employment rate of low-skilled workers improved, but remains below pre-crisis levels and the Union average. Evaluation of active labour market policies shows that most programmes are performing well, however expenditure in this field and the participation rate of unemployed people in the programmes both remain limited. While the 2013 labour market reform clearly helped certain vulnerable groups enter employment, temporary employment remains an issue.

                  (13)

                  Measures have been adopted to improve funding options for firms in Slovenia and to provide them with alternatives to bank credits. However, reliance on bank credit presents a continued funding challenge, in particular for small and medium-sized enterprises, for which access to finance remains a growth barrier. Current measures have not yet resulted in improved financing, particularly for innovative firms. There are only a small number of high-growth enterprises in Slovenia and these lack sufficient support to scale up. Venture capital, as one form of equity financing, is growing but from a very low level. Innovative companies would also benefit from more efficient public research which is currently hindered by difficulties in attracting domestic and foreign talent and a lack of performance-based funding. The level of private investment in Slovenia remains relatively low compared to peer countries meriting focussed efforts to further improve the framework conditions for investment, particularly in areas yielding strong potential to increase productivity.

                  (14)

                  Businesses are held back by the still high regulatory and administrative burden. Red tape is considered to be one of the most problematic factors in terms of doing business in Slovenia. This mainly relates to uncertainty and complexity of tax procedures but is not limited to this area as it still takes about a year for commercial cases to be heard by a court. Slovenia has created a tool to help reduce administrative burden and is progressing with implementing this. A significant part of this implementation has not yet been carried out.

                  (15)

                  Equally, Slovenia has only started to address its high level of restrictive regulation in certain service sectors. Reforms have been carried out to liberalise the professional requirements for architects and civil engineers, but other issues identified by Commission's services remain unaddressed. Reforms would also benefit Slovenian manufacturing firms which depend on competitive services inputs.

                  (16)

                  Efficient public procurement is key to cost control and quality improvements in Slovenia's health sector. Expanding centralised procurement as well as other forms of procurement aggregation such as joint procurement between hospitals, is crucial to ensuring good quality supplies of innovative products at competitive prices.

                  (17)

                  Slovenia struggles with inefficiency in public procurement. Competition between bidders is comparatively low, as indicated by the low number of bids received per tender and by the high ratio of negotiated procedures without prior call. The latter also reduces transparency. Professionalisation of those involved in procurement is low and there are few safeguards against corruption and collusion among bidders. In particular, the independence of the National Review Commission is limited, as a result of the procedure for appointing its members. While economic crime and corruption are estimated by the authorities to have caused significant damage in the past years, some anti-corruption reforms are still pending.

                  (18)

                  Slovenia still has high state involvement in the economy, in particular in the financial sector. The previously published plans for privatisation have been implemented slowly. Proceeding with privatisations would increase the viability of the companies in the long run and would lower the risks for public finances.

                  (19)

                  In the context of the 2018 European Semester, the Commission has carried out a comprehensive analysis of Slovenia's economic policy and published it in the 2018 country report. It has also assessed the 2018 Stability Programme, the 2018 National Reform Programme and the follow-up given to the recommendations addressed to Slovenia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovenia but also the extent to which they comply with Union rules and guidance, given the need to strengthen the Union's overall economic governance by providing Union-level input into future national decisions.

                  (20)

                  In the light of the Commission's in-depth review and this assessment, the Council has examined the 2018 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below,

            HEREBY RECOMMENDS that Slovenia take action in 2018 and 2019 to:

                  1.

                  Ensure that the nominal growth rate of net primary government expenditure does not exceed 3,1 % in 2019, corresponding to an annual structural adjustment of 0,65 % of GDP. Adopt and implement the Healthcare and Health Insurance Act and the planned reform of long-term care. Ensure the long-term sustainability and adequacy of the pension system, including by increasing the statutory retirement age and by restricting early retirement. Increase the employability of low-skilled and older workers through lifelong learning and activation measures.

                  2.

                  Develop alternative sources of financing for fast-growing companies. Lower the barriers for market entry through the revision of Product Market Regulation and limiting administrative burden. Enhance competition, professionalisation and independent oversight in public procurement. Carry out the privatisations in line with to the existing plans.

         Done at Brussels, 13 July 2018.

               For the Council

               The President

            H. LÖGER

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

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

         (3)  OJ C 179, 25.5.2018, p. 1.

         (4)  OJ C 261, 9.8.2017, p. 1.

         (5)  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).

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

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


title: Council Recommendation of 13 July 2018 on the 2018 National Reform Programme of Spain and delivering a Council opinion on the 2018 Stability Programme of Spain

text:
               10.9.2018

               EN

               Official Journal of the European Union

               C 320/33

      COUNCIL RECOMMENDATION
      of 13 July 2018
      on the 2018 National Reform Programme of Spain and delivering a Council opinion on the 2018 Stability Programme of Spain
      (2018/C 320/08)
      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 Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (2), and in particular Article 6(1) thereof
      Having regard to the recommendation of the European Commission,
      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 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Spain as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was endorsed by the European Council on 22 March 2018. On 14 May 2018, the Council adopted the Recommendation on the economic policy of the euro area (3) (‘Recommendation for the euro area’).

                  (2)

                  As a Member State whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Spain should ensure the full and timely implementation of the Recommendation for the euro area, as reflected in recommendations (1) to (3) below.

                  (3)

                  The 2018 country report for Spain was published on 7 March 2018. It assessed Spain's progress in addressing the country-specific recommendations adopted by the Council on 11 July 2017 (4), the follow-up given to the country-specific recommendations adopted in previous years and Spain's progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 7 March 2018. The Commission's analysis led it to conclude that Spain is experiencing macroeconomic imbalances. In particular, large stocks of external and internal debt, both public and private, in a context of high unemployment, continue to constitute vulnerabilities with cross-border relevance. The external rebalancing is advancing, thanks to the current account surpluses recorded since 2013, which are underpinned by structural improvements in trade performance. However, net external liabilities remain high. Private sector debt reduction is also progressing, supported by favourable growth conditions, but deleveraging needs persist. A healthier financial sector is supporting economic activity. Despite the strong nominal GDP growth, government debt as a share of GDP is only slowly decreasing. The unemployment rate has continued its rapid decline, but remains very high and the high degree of labour market segmentation impedes faster labour productivity growth. Following the strong reform momentum between 2012 and 2015, progress on the implementation of recommendations has become more limited. The present economic situation provides a window of opportunity to address pending reform needs with a view to making the Spanish economy more resilient and raising productivity growth.

                  (4)

                  Spain is currently in the corrective arm of the Stability and Growth Pact. In its 2018 Stability Programme, Spain plans to correct the excessive deficit by 2018, in line with Council Decision (EU) 2017/984 giving notice to Spain to take measures for the deficit reduction judged necessary in order to remedy the situation of excessive deficit (5). The general government balance is planned to continue improving and to reach a 0,1 % of GDP surplus in 2021. The 2018 Stability Programme incorporates all the measures included in the draft budget law submitted to Parliament on 3 April 2018 as well as additional measures announced by late April 2018. The medium-term budgetary objective of a balanced budgetary position in structural terms is not planned to be reached within the time horizon of the 2018 Stability Programme. The 2018 Stability Programme projects the government debt-to-GDP ratio to decline to 97,0 % in 2018, 95,2 % in 2019, and 89,1 % in 2021. The 2018 Stability Programme's macroeconomic assumptions are plausible. Overall, the planned achievement of the headline deficit targets continues to rely on the strong economic outlook and on government expenditure growing by less than nominal GDP. Risks to the achievement of the fiscal targets relate to both stronger revenue growth and more contained expenditure increases than those projected in the Commission 2018 spring forecast, and to the possible materialisation of further contingent liabilities.

                  (5)

                  In Decision (EU) 2017/984, the Council requested Spain to put an end to the excessive deficit situation by 2018 and, in particular, to reduce the general government deficit to 4,6 % of GDP in 2016, 3,1 % of GDP in 2017 and 2,2 % of GDP in 2018. This improvement in the general government balance was deemed consistent with a deterioration of the structural balance by 0,4 % of GDP in 2016, and a 0,5 % of GDP improvement in both 2017 and 2018, based on the updated Commission 2016 spring forecast. Spain reached a headline deficit of 3,1 % of GDP in 2017, as required in Council Decision (EU) 2017/984. The Commission 2018 spring forecast projects the headline deficit to decline to 2,6 % of GDP in 2018, 0,4 % of GDP above the headline deficit target in the 2018 Stability Programme and that set by the Council. Compared to the 2018 Stability Programme, the Commission 2018 spring forecast projects lower growth in government revenues and somewhat higher expenditure. In the Commission 2018 spring forecast, the structural balance is forecast to deteriorate by 0,3 % of GDP in 2018, against the backdrop of deficit-increasing measures included in the draft budget law for 2018 that reached Parliament on 3 April 2018, and to improve only slightly in 2019. Hence, the fiscal effort in 2018 as well as cumulated over 2016-2018 is not expected to be ensured. While the economic expansion is supporting the deficit reduction, it is not being used to structurally strengthen the public finances. Accordingly, in its Opinion on the updated 2018 Draft Budgetary Plan of Spain, the Commission concludes that the Plan is broadly compliant with the provisions of the Stability and Growth Pact, as the Commission 2018 spring forecast projects that the excessive deficit will be corrected in a timely manner, but is expansionary.

                  (6)

                  For 2019, should a timely and durable correction of the excessive deficit be achieved, Spain would be subject to the preventive arm of the Stability and Growth Pact and to the transitional debt rule. In view of Spain's general government debt ratio above 60 % of GDP and projected positive output gap of 2,3 % of GDP, nominal net primary government expenditure (6) should fall by at least 0,3 % in 2019, in line with the structural adjustment of 1,0 % of GDP stemming from the commonly agreed adjustment matrix of requirements under the Stability and Growth Pact. At the same time, there are signs that idle capacity in the economy is underestimated. In 2019, Spain is still expected to record one of the highest unemployment rates in the Union, which is set to contain wage pressures, especially in the private sector, and in turn inflation is expected to remain well below 2 %. This points to remaining slack in the labour market. In addition, even if the Commission's assessment of the plausibility of the output gap does not flag the output- gap estimates based on the commonly agreed methodology as implausible, it indicates a rather wide range of plausible output-gap estimates for Spain. On this basis, an annual structural adjustment of 0,65 % of GDP, corresponding to a maximum growth rate of net primary government expenditure of 0,6 %, appears appropriate. According to the Commission 2018 spring forecast, under unchanged policies, there is a risk of a significant deviation from the required fiscal adjustment in 2019. In addition, Spain is not projected to comply with the requirements of the transitional debt rule in 2019. Overall, the Council is of the opinion that Spain needs to stand ready to take further measures to ensure compliance in 2018 and that the necessary measures should be taken as of 2019 to comply with the provisions of the Stability and Growth Pact. The use of any windfall gains to further reduce the general government debt ratio would be prudent.

                  (7)

                  In addition, in Decision (EU) 2017/984, the Council also requested Spain to take measures to improve its fiscal framework, with a view to increasing the automaticity of mechanisms to prevent and correct deviations from the fiscal targets and to strengthening the contribution of the Stability Law's spending rule to fiscal consolidation. However, the 2018 Stability Programme does not report plans to reinforce the domestic spending rule. Neither does it report measures to increase in the law the automaticity of the corrective and preventive mechanisms. The Council also requested Spain to take measures to improve its public procurement policy framework. Spain has made progress with the adoption of a new law on public sector contracts in November 2017. However, the new legislation can only improve the efficiency and transparency of public procurement if it is swiftly and ambitiously implemented by setting up the new governance structure and enhancing control mechanisms of procurement procedures at all levels of government. In particular, the forthcoming National Public Procurement Strategy should specify the ex-ante and ex-post controls to be carried out by the new structures. In June 2017, the Government commissioned the independent fiscal authority to carry out a spending review on selected public sector subsidies. The Commission monitors the implementation of the review, which is expected to be completed by early 2019.

                  (8)

                  On 27 April 2018, Spain submitted its 2018 National Reform Programme and its 2018 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

                  (9)

                  Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds (‘ESI Funds’) for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (7), 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 that provision in guidelines on the application of the measures linking the effectiveness of the ESI Funds to sound economic governance.

                  (10)

                  Employment has continued to grow at a robust pace in Spain, supported by the effects of past labour market reforms and wage moderation. The unemployment rate continues to fall, but it remains well above the country's pre-crisis levels and ranks among the highest in the Union. This entails considerable untapped skills potential, in particular for young unemployed people. The proportion of unemployed people who have been without a job for more than a year is decreasing but still accounts for 44,5 % of all unemployed people. Spain adopted a set of policy initiatives to extend the individual support to the long-term unemployed and to help young people enter the labour market and improve their employability, in particular by increasing the number of Youth Guarantee beneficiaries. The effectiveness of these measures also depends on the capacity of regional public employment and social services to deliver personalised support to jobseekers, which is only slowly improving. There is also scope for greater cooperation with employers, in particular by increasing the percentage of vacancies handled by the employment services and by better profiling and matching of jobseekers with employers' needs. At the same time, efforts to improve the coordination between employment and social services, which has seen some progress in 2017, should be maintained.

                  (11)

                  The proportion of employees on temporary contracts is among the highest in the Union, and mostly comprises young and low-skilled workers. Temporary contracts are often short term and rarely serve as a stepping stone to a permanent contract. Their widespread use, including in sectors less prone to seasonal or cyclical activity, may impede faster productivity growth and is often associated with lower entitlements to social benefits and higher risks of poverty. While open-ended contracts have increased as a percentage of net employment growth in the last two years, further action is needed to incentivise transitions from temporary contracts into open-ended ones. The system of recruitment incentives remains fragmented and does not effectively aim to promote open-ended employment. Spain adopted a plan to reduce the reliance on fixed-term employment in the public sector, but its implementation is just beginning and needs to speed up to meet the 8 % target set for 2019. Labour inspectorates' greater capacity and effectiveness in fighting the abuse of temporary contracts has resulted in an increased number of them being converted into permanent contracts, but does not seem to discourage employers from continuing to use them extensively. The tripartite round table set up at the beginning of 2017 to discuss quality of employment has not yet made specific proposals. The involvement of social partners in policy design has increased recently but there is still room for further improvement.

                  (12)

                  Economic growth and job creation are helping to reduce the share of people at risk of poverty and social exclusion, which nevertheless remains above the Union average, as well as income inequality. In-work poverty is a concern especially amongst households with members employed on temporary or part-time contracts. The child poverty rate, although declining, remains very high. The impact of social transfers other than pensions on reducing poverty is below the Union average and decreasing. Income guarantee schemes are marked by large disparities in access conditions across regions, and by the fragmentation of multiple national schemes that target different groups of jobseekers and are managed by different administrations. As a result, a number of people in need do not receive support. Further to the recent study assessing the effectiveness of the national and regional income guarantee schemes, no action plan has been agreed yet. The launch of a Universal Social Card system should make the social benefits granted more transparent and facilitate participation in associated activation measures, although it will not directly address the weaknesses of the existing schemes. The effectiveness of family benefits is also low and coverage is uneven. The Spanish pension system plays an important role in maintaining the quality of life of older people, who as a result face a significantly lower risk of poverty than younger generations. Relative to wages, current pensions are among the highest in the Union. Projections in the forthcoming 2018 Ageing Report and Pension Adequacy Report (8) indicate that the 2011 and 2013 reforms helped to ensure sustainability and relative adequacy of pensions in the long term. However, the increases in pensions and the postponement of the sustainability factor proposed during the adoption process of the draft 2018 budget call into question the commitment to these reforms. At the same time, they do not address the main challenge to income adequacy of future retirees, which is rather related to high unemployment and segmentation in the labour market.

                  (13)

                  Addressing weaknesses in Spanish firms' innovation capacity could improve their productivity. Innovation performance and productivity growth are hampered by persistently subdued levels of investment in research and development, which make reaching the national Europe 2020 research and development intensity target of 2 % very unlikely. This trend is reinforced by the low and falling execution rate of the public budget for research and development. While governance of national research and innovation policy is being streamlined, partly through the new State Agency for Research, national-regional coordination in the design, implementation and evaluation of policy remains weak. Developing an evaluation culture to systematically assess the effectiveness of support programmes and policies would allow policy learning and create synergies across levels of government.

                  (14)

                  The limited innovation capacity of Spanish firms is also explained by skills mismatches, which negatively affect the long-term potential for productivity growth. Under-qualification and over-qualification at work are widespread in Spain. Despite having improved markedly over the last decade, early-school-leaving rates are well above the Union average. Together with educational outcomes, they vary greatly across regions and may affect equality of opportunities. Targeted programmes to address these disparities have so far only had limited effects. The National Social and Political Pact on Education, aimed at an in-depth reform of the education system, is still in the negotiation phase. In the meantime, the professional development of teachers is to be supported by reducing temporary employment contracts and increased resources for their training. At the same time, tertiary graduates in particular face difficulties in finding adequate, stable jobs in the labour market. Greater cooperation between education and business could boost labour market access of young graduates, while providing firms with the skills required to enhance their innovation capacity. In this context, the proposal for a new national digital strategy acknowledges the need to improve digital skills. Challenges relate to the low number of specialists in information and communication technologies, as well as to promoting the role of the education system in advancing digital skills. Retraining workers in digital skills would also allow Spanish companies to remain competitive in an increasingly digitised economy.

                  (15)

                  Regulatory disparities in the business environment also play a role in keeping productivity growth restrained. In the current context, regulatory disparities and restrictions in the business environment contribute to keeping mark-ups high, reducing the geographical mobility of companies and workers, and restraining productivity growth. The Law on Market Unity, which aimed to meet this challenge, has been implemented only in part. The monitoring of the implementation of that Law at regional and local level must be improved and the role of the sectoral conferences strengthened. That Law introduced the principle that compliance with certain requirements in one part of the territory would allow businesses to operate in the whole territory. In several judgments published in 2017, the Constitutional Court held that this principle is void in the absence of common or equivalent minimum standards for access to or exercise of an economic activity. In light of these judgments, establishing consistent common or equivalent standards throughout the territory could help fulfil the objectives of that Law. In addition, cooperation between the different levels of government should be improved at all stages of the implementation to more effectively tackle the adverse effects of fragmentation on businesses. The work of the Committee for Better Regulation, which was set up to ensure that the legislation was aligned with the Union acquis on services, should be accelerated. Restrictions affecting certain regulated professions such as civil engineers and architects were also highlighted in the Services Package adopted in January 2017, and no specific measures to address them have been taken so far.

                  (16)

                  More generally, improvements in the quality of institutions could boost trust in the Spanish economy and amplify the gains from measures adopted to increase productivity growth. Progress has been made in the transparency of party financing, and disclosure of assets and conflicts of interest. The business environment has also benefited from progress in the fight against corruption, although concerns still remain in this area. Perceptions of the independence of the justice system have also improved amongst citizens and businesses. Efforts to further improve the effectiveness of the justice system are under way and should be continued. Though some progress has been made in this broad area, the challenge of fostering trust in institutions across all levels of government remains.

                  (17)

                  Further enhancing the transport, energy and water infrastructure would foster territorial cohesion, better integration in the common market and productivity growth. Cross-border transport and energy connections, as well as the water infrastructure, face investment gaps. Better use could be made of passenger and freight rail infrastructures. The different gauges coexisting in Spain, Portugal and France are a critical barrier to better rail connectivity, although new sections using the internationally prevalent standard gauge have been completed recently. Shortcomings are also found in freight railway connections between the main harbours on the Atlantic and Mediterranean coasts and in-land industrial areas. Insufficient connectivity also impedes closer integration in the Union electricity and gas markets. Further infrastructure investment is needed to improve water management, for example to treat wastewater, reduce leaks in the networks and improve water supply. This would bring environmental, economic and social benefits to Spain.

                  (18)

                  In the context of the 2018 European Semester, the Commission has carried out a comprehensive analysis of Spain's economic policy and published it in the 2018 country report. It has also assessed the 2018 Stability Programme, the 2018 National Reform Programme and the follow-up given to the recommendations addressed to Spain in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Spain but also the extent to which they comply with Union rules and guidance, given the need to strengthen the Union's overall economic governance by providing Union-level input into future national decisions.

                  (19)

                  In the light of this assessment, the Council has examined the 2018 Stability Programme and its opinion (9) is reflected in particular in recommendation (1) below.

                  (20)

                  In the light of the Commission's in-depth review and this assessment, the Council has examined the 2018 National Reform Programme and the 2018 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1) to (3) below,

            HEREBY RECOMMENDS that Spain take action in 2018 and 2019 to:

                  1.

                  Ensure compliance with Council Decision (EU) 2017/984 giving notice under the excessive deficit procedure, including through measures to enforce the fiscal and public procurement frameworks at all levels of government. Thereafter, ensure that the nominal growth rate of net primary government expenditure does not exceed 0,6 % in 2019, corresponding to an annual structural adjustment of 0,65 % of GDP. Use windfall gains to accelerate the reduction of the general government debt ratio.

                  2.

                  Ensure that employment and social services have the capacity to provide effective support for jobseekers, including through better cooperation with employers. Foster transitions towards open-ended contracts. Improve family support and increase the effectiveness of income guarantee schemes, by addressing coverage gaps, simplifying the system of national schemes and reducing disparities in access conditions to regional ones. Reduce early school leaving and regional disparities in educational outcomes, in particular by better supporting students and teachers.

                  3.

                  Increase public investment in research and innovation and systematically carry out evaluations of support policies in this area to ensure their effectiveness. Increase cooperation between education and businesses with a view to mitigating existing skills mismatches. Further the implementation of the Law on Market Unity by ensuring that, at all levels of government, rules governing access to and exercise of economic activities, in particular for services, are in line with principles of that Law and by improving cooperation between administrations.

         Done at Brussels, 13 July 2018.

               For the Council

               The President

            H. LÖGER

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

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

         (3)  OJ C 179, 25.5.2018, p. 1.

         (4)  OJ C 261, 9.8.2017, p. 1.

         (5)  OJ L 148, 10.6.2017, p. 38.

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

         (7)  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).

         (8)  European Commission (2018), The 2018 Pension Adequacy Report: current and future income adequacy in old age in the EU, Volume I and Volume II Joint Report prepared by the Social Protection Committee (SPC) and the European Commission (DG EMPL), Publications Office of the European Union, Luxembourg, 2018.

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


title: Council Recommendation of 13 July 2018 on the 2018 National Reform Programme of Slovakia and delivering a Council opinion on the 2018 Stability Programme of Slovakia

text:
               10.9.2018

               EN

               Official Journal of the European Union

               C 320/107

      COUNCIL RECOMMENDATION
      of 13 July 2018
      on the 2018 National Reform Programme of Slovakia and delivering a Council opinion on the 2018 Stability Programme of Slovakia
      (2018/C 320/24)
      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 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 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also 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. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was endorsed by the European Council on 22 March 2018. On 14 May 2018, the Council adopted the Recommendation on the economic policy of the euro area (3) (‘Recommendation for the euro area’).

                  (2)

                  As a Member State whose currency is the euro and in view of the close interlinkages between the economies in the economic and monetary union, Slovakia should ensure the full and timely implementation of the Recommendation for the euro area, as reflected in the recommendations below, in particular recommendation (1).

                  (3)

                  The 2018 country report for Slovakia was published on 7 March 2018. It assessed Slovakia's progress in addressing the country-specific recommendations adopted by the Council on 11 July 2017 (4), the follow-up given to the country-specific recommendations adopted in previous years and Slovakia's progress towards its national Europe 2020 targets.

                  (4)

                  On 25 April 2018, Slovakia submitted its 2018 National Reform Programme and its 2018 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

                  (5)

                  Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds (‘ESI Funds’) for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (5), 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 that provision in guidelines on the application of the measures linking the effectiveness of the ESI Funds to sound economic governance.

                  (6)

                  Slovakia is currently in the preventive arm of the Stability and Growth Pact. In its 2018 Stability Programme, the Government plans to improve the headline deficit to 0,8 % of GDP in 2018, and gradually further to 0,0 % of GDP in 2021. The medium-term budgetary objective — a structural deficit of 0,5 % of GDP — is expected to be reached in 2020. According to the 2018 Stability Programme, the general government debt-to-GDP ratio is expected to gradually decline from 49,3 % in 2018 to 43,3 % by 2021. The macroeconomic scenario underpinning those budgetary projections is plausible. At the same time, the measures needed to support the planned deficit targets from 2019 onwards have not been fully specified. The budget includes a non-specified category of expenditure called budgetary reserves which represents a non-negligible share (0,7 % of GDP) and can be used for ad hoc operations, thus reducing predictability in budget implementation.

                  (7)

                  On 11 July 2017, the Council recommended Slovakia to ensure that the nominal growth rate of net primary government expenditure (6) does not exceed 2,9 % in 2018, corresponding to an annual structural adjustment of 0,5 % of GDP. At the same time, it was stated that the assessment of the 2018 Draft Budgetary Plan and subsequent assessment of 2018 budget outcomes will need to take due account of the goal of achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of public finances. Following the Commission's assessment of the strength of the recovery in Slovakia while giving due consideration to its sustainability challenges, no additional elements in that regard need to be taken into account. Based on the Commission spring 2018 forecast, there is a risk of a significant deviation from that recommendation in 2018.

                  (8)

                  In 2019, in view of Slovakia's projected output gap of 1,2 % of GDP, the nominal growth rate of net primary government expenditure should not exceed 4,1 %, in line with the structural adjustment of 0,5 % of GDP stemming from the commonly agreed adjustment matrix of requirements under the Stability and Growth Pact. Under unchanged policies, Slovakia would be at risk of significant deviation from that requirement in 2019, due to the deviation over 2018 and 2019 taken together. Overall, the Council is of the opinion that the necessary measures should be taken as of 2018 to ensure compliance with the provisions of the Stability and Growth Pact.

                  (9)

                  Slovakia's public finances still face risks in the long term. Healthcare expenditure continues to pose a risk to the long-term sustainability of public finances as increasing the cost effectiveness of healthcare in Slovakia remains a challenge. In the long term, public expenditure on healthcare is projected to increase by 1,2 percentage points of GDP, above the average estimated increase of 0,9 percentage points for the Union. The pension system has seen a gradual improvement in its long-term sustainability due primarily to the automatic increase in the retirement age, which has reduced the projected age-related spending increases in the long term.

                  (10)

                  Although some steps have been taken to improve the cost effectiveness of the healthcare system, in particular through the implementation of the Value for Money spending review, the potential to rationalise the use of resources remains significant. Plans for a far-reaching healthcare reform allowing the streamlining of services, better hospital resource management and more efficient care system are showing no signs of progress. The consumption of hospital services continues to be high, with high rates of hospitalisation for chronic diseases and discharge rates above the Union average, coupled with relatively low bed occupancy rates. While strengthening the primary care sector can ease the high burden put on hospitals, the system suffers from a shortage of general practitioners, which is exacerbated by their uneven geographical distribution. The age composition of general practitioners also raises concerns for their future supply. Lastly, several provisions aimed at enhancing the cost effectiveness of the health system such as the full introduction of a diagnosis-related group payment system and the effective operationalisation of the e-health system are still in their development phase. They are likely to face further delays and implementation challenges in the future.

                  (11)

                  Fiscal revenues are increasing on the back of swift economic growth and efforts are ongoing to improve tax compliance and close Slovakia's high value added tax gap. While fiscal incentives promoting R&D were increased, property taxation remains a weak revenue source. A rolling programme of spending reviews for all key areas of public spending is proving to be an effective and rigorous tool for improving cost effectiveness in government spending.

                  (12)

                  Positive developments in the labour market continue, marked by increasing employment and historically low levels of unemployment. Nevertheless, the long-term unemployment continues to be one of the highest in the Union, affecting particularly disadvantaged groups such as low-skilled workers, young people and marginalised Roma. As a result of the improving labour market conditions, reports of skilled labour shortages in some sectors of the economy have started to appear. Regional disparities in the labour market are pronounced, with higher unemployment concentrated in eastern Slovakia and labour shortages concentrated in the western part of the country. Slovakia has started to implement its action plan on the integration of the long-term unemployed, supported by the European Social Fund. The plan introduces in particular personalised services, social counselling, and a new basic profiling system. However, implementation has not yet yielded significant structural improvements. Gaps persist in cooperation with private partners and non-governmental organisations to alleviate caseloads in public employment services, while individualised counselling is at an early stage. In addition, the rough segmentation of the long-term unemployed does not fully serve as a tool for subsequent referral to activation measures. Training and requalification programmes have been strengthened but are still insufficient and their targeting of the long-term unemployed and disadvantaged groups remains limited. In addition, adult participation in learning is still very low and second-chance education for disadvantaged groups is underdeveloped. The eligibility criteria for unemployment benefits are strict and the duration of benefits is short. This results in low coverage of the short-term unemployed receiving unemployment benefits.

                  (13)

                  The gender employment gap and gender pay gap are well above the Union average. The low employment rate of women of childbearing age reflects the fact that long parental leave is rarely taken up by men, accompanied by a low take-up of flexible working arrangements and limited affordability and access to childcare facilities. Particularly for children under the age of three, the enrolment rates in childcare are extremely low.

                  (14)

                  The education system does not sufficiently contribute to the socioeconomic development of Slovakia, and is underfunded at all levels. The quality of educational outcomes, the participation of Roma in inclusive mainstream education and the effective integration of students from socioeconomically disadvantaged backgrounds in education and training are pressing challenges. Educational outcomes and the level of basic skills remain weak by international standards and are profoundly impacted by students' socioeconomic background. Early school leaving is low but increasing and regional disparities in dropout rates are pronounced. Despite plans to annually increase teacher salaries by 6 % until 2020, the teaching profession is still unattractive, in part due to limited initial training and professional development opportunities. The implementation of measures to increase the participation of Roma pupils in inclusive mainstream education is extremely weak due to inadequate financial support and monitoring as well as insufficient training of teachers on intercultural issues.

                  (15)

                  Public administration is still burdened by inefficiency and bottlenecks caused by poor inter-ministerial cooperation and weak political neutrality of the civil service. Implementation of the Civil Service Act has been slowly taking off, but its impact on improving human resource management remains to be seen. On the management of Union funds, administration capacity and efficiency is still limited and staff turnover remains high, in part linked to the political cycle. This is nevertheless being addressed by strengthening the coordinating role of the Office of the Deputy Prime Minister which acts as a stabilising factor on continuity and institutional expertise in implementing organisations.

                  (16)

                  ESI Funds are pivotal in addressing key challenges to improve competitiveness, growth and jobs in Slovakia. Slovakia suffered from a loss of EUR 26 million of funding for research and innovation in 2017 mostly due to problems in applying selection criteria and selecting evaluators, as confirmed by the verifications carried out. If appropriate measures are not taken to accelerate implementation, there is a high risk that another part of the funding allocation will be lost. While the project selection rate has now exceeded half of the total allocation for the current programming period, implementation on the ground resulted in payments to beneficiaries amounting only to 11 % of the allocation.

                  (17)

                  The low effectivity of public administration also translates to other sectors, including energy and the environment. Recycling rates are very low and air quality remains relatively poor. Sustainable forest management is an increasing challenge. The energy sector suffers from overregulation and energy policies are not fully in line with the climate and energy objectives of the Union.

                  (18)

                  Slovakia has taken important steps towards achieving a well-functioning system of public procurement. Efforts have been made to introduce quality award criteria. Mandatory electronic tools for conducting public procurement procedures should be in place by October 2018. While not optimally efficient, comprehensive prior verifications have been carried out on all projects funded through the ESI Funds. Nevertheless, a satisfactory performance has not yet been achieved in the areas of internal controls, transparency, digitisation, professionalisation, strategic and environmentally sustainable public procurement. This is reflected in Slovakia's scores related to anti-competitive practices, which remain somewhat above the Union average, despite some improvement. Moreover, there are still only limited signs of commitment to fighting corruption. More than half of businesses perceive corruption as widespread in public procurement managed by national authorities.

                  (19)

                  Corruption, complex administrative procedures, excessive and fast-changing business regulations and concerns about the governance of several regulatory bodies heavily affect the quality of Slovakia's business environment. While Slovakia lost some ground in some international comparisons, it has identified a number of measures to improve the quality of the business environment and boost investment. Slovakia has also strengthened its framework for regulatory impact assessment, extending its use in recent years. Finally, RIA (Regulatory Impact Assessment) 2020, a new strategy for better regulation has been recently adopted. High regulatory barriers remain in the business services sector with levels of restrictiveness higher than the Union average for architects, engineers, tax advisers, lawyers, patent agents, real estate agents and tourist guides. Recommendations to address the regulatory barriers were made in the Commission Communication of 10 January 2017 on reform recommendations for regulation in professional services. However, Slovakia has reported no progress in addressing those restrictions.

                  (20)

                  Overall, no progress has been achieved in stepping up the fight against corruption. Corruption perceptions remain high and prosecutions for such offences have fallen further. The perception of corruption has further deteriorated in the wake of the murder of an investigative journalist and his findings on a wide range of high-level corruption cases. The proportion of high-level cases prosecuted is extremely low. The lack of accountability for police and public prosecutors has not been resolved and hinder the fight against corruption and investigations of sensitive corruption cases.

                  (21)

                  Improving the effectiveness of the justice system, including the independence, remains a challenge for Slovakia, despite some improvements in efficiency. Concerns about the independence of the judiciary persist, including the appointment processes for judges at all levels of the judiciary.

                  (22)

                  Although boosting innovation can trigger competitiveness and facilitate the transition to a knowledge-based economy, Slovakia's capacity to innovate remains moderate, with a business R&D intensity which is very low (0,40 % of GDP in 2016). While Slovakia has a large medium/high-tech manufacturing sector, the dominant multinational companies have so far shown only limited interest in carrying out R&D activities and the percentage of small and medium-sized enterprises innovating in-house was much lower in Slovakia (13,9 %) than in the Union as a whole (28,8 %) in 2016.

                  (23)

                  Public investments in research and innovation increased strongly between 2009 and 2015 due to the use of the ESI Funds. The full potential of these investments has not been realised due to inefficiencies in Slovakia's research environment. Despite the strengthened role of the Office of the Deputy Prime Minister for coordination of research, development and innovation, the overall governance of policy in this area is weak. The fragmented nature of the system and the weak governance framework, with responsibilities split among several ministries and implementing agencies, which are often poorly coordinated, leads to a regular postponement of reforms. Measures to stimulate knowledge transfer, strengthen research capacities in industry, and improve the cooperation between businesses and academia are advancing only slowly.

                  (24)

                  In the context of the 2018 European Semester, the Commission has carried out a comprehensive analysis of Slovakia's economic policy and published it in the 2018 country report. It has also assessed the 2018 Stability Programme, the 2018 National Reform Programme and the follow-up given to the recommendations addressed to Slovakia in previous years. The Commission has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Slovakia but also the extent to which they comply with Union rules and guidance, given the need to strengthen the Union's overall economic governance by providing Union-level input into future national decisions.

                  (25)

                  In the light of this assessment, the Council has examined the 2018 Stability Programme and its opinion (7) is reflected in particular in recommendation (1) below.

            HEREBY RECOMMENDS that Slovakia take action in 2018 and 2019 to:

                  1.

                  Ensure that the nominal growth rate of net primary government expenditure does not exceed 4,1 % in 2019, corresponding to an annual structural adjustment of 0,5 % of GDP. Implement measures to increase the cost effectiveness of the healthcare system and develop a more effective healthcare workforce strategy.

                  2.

                  Reinforce activation and upskilling measures, including quality targeted training and individualised services for disadvantaged groups, in particular by delivering on the action plan for the long-term unemployed. Foster women's employment, especially by extending affordable, quality childcare. Improve the quality and inclusiveness of education, including by increasing the participation of Roma children in mainstream education from early childhood onwards.

                  3.

                  Increase the use of quality-related and lifecycle cost criteria in public procurement operations. Tackle corruption, including by ensuring enforcement of existing legislation and by increasing accountability at the level of police and prosecution. Improve the effectiveness of the justice system, in particular by safeguarding independence in judicial appointment procedures. Reduce the fragmentation of the public research system and stimulate business innovation, including for small and medium-sized enterprises.

         Done at Brussels, 13 July 2018.

               For the Council

               The President

            H. LÖGER

         (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)  OJ C 179, 25.5.2018, p. 1.

         (4)  OJ C 261, 9.8.2017, p. 1.

         (5)  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).

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

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