               EUROPEAN COMMISSION
            Brussels, 22.5.2017
            COM(2017) 507 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2017 National Reform Programme of Irelandand delivering a Council opinion on the 2017 Stability Programme of Ireland

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2017 National Reform Programme of Ireland

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

               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,
                  3

               Having regard to the resolutions of the European Parliament,
                  4

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 16 November 2016, the Commission adopted the Annual Growth Survey,
                  5
                marking the start of the 2017 European Semester of economic policy coordination. The priorities of the Annual Growth Survey were endorsed by the European Council on 9-10 March 2017. On 16 November 2016, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report,
                  6
                in which it identified Ireland as one of the Member States for which an in-depth review would be carried out. On the same day, the Commission also adopted a recommendation for a Council Recommendation on the economic policy of the euro area. That Recommendation was endorsed by the European Council on 9-10 March 2017 and adopted by the Council on 21 March 2017.
                  7

               (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, Ireland should ensure the full and timely implementation of the Recommendation for the euro area which is reflected in recommendations 1 to 3 below.

               (3)The 2017 country report for Ireland
                  8
                was published on 22 February 2017. It assessed Ireland’s progress in addressing the country-specific recommendations adopted by the Council on 12 July 2016, the follow-up given to the recommendations adopted in previous years and Ireland’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 22 February 2017.
                  9

               (4)The Commission’s analysis leads it to conclude that Ireland is experiencing macroeconomic imbalances. In particular, these imbalances are characterised by a large stock of external, public and private debt (both of households and non-financial corporations), which makes Ireland vulnerable to adverse shocks. Banks are still facing a high level of non-performing loans but are well capitalised and their profitability, although still low, is improving gradually. Housing prices are increasing and supply constraints persist. Non-financial corporations' debt stock decreased over 2015, but was still higher than it was at the end of 2014. Household debt stock decreased in 2015 and public debt is on a firm downward trajectory. Ireland’s negative net international investment position had been falling at a fast pace before 2015, but it then reversed, partly due to a level shift in 2015. However, the external sustainability of the domestic sector does not seem to be at risk. The stock of non-performing loans has been declining over the last year but the pace of reduction was slowing down somewhat by the end of 2016. Property prices continued to increase in 2015, but as of now there is no significant evidence of overvaluation. Policy measures have been taken in recent years to address all imbalances highlighted, including in the banking sector (improved regulatory framework, measures to address the high level of non-performing loans). The government has taken several relevant measures to address the undersupply in the housing market, but it will take time for them to generate effects.

               (5)On 13 April 2017, Ireland submitted its 2017 National Reform Programme and on 2 May 2017 Ireland submitted its 2017 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (6)The relevant country-specific recommendations have been taken into account in the Member States’ programmes for the European Structural and Investment Funds (ESI Funds) covering the 2014-2020 period. As foreseen in the legislation governing the ESI Funds,
                  10
                where it is necessary to support the implementation of relevant country-specific recommendations, the Commission may request a Member State to review and amend its relevant ESI Funds programmes. The Commission has provided further guidelines on the application of those rules.
                  11

               (7)Ireland is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule. In its 2017 Stability Programme, the government expects the headline deficit to decline slightly to 0.4% of GDP in 2017 and to continue to gradually decrease thereafter, turning into a surplus of 1.0% of GDP in 2021. The medium-term budgetary objective — a structural deficit of 0.5 % of GDP — is expected to be met from 2018 onwards. According to the Stability Programme, the general government debt-to-GDP ratio is expected to fall to 72.9% in 2017 and to continue declining to 65.2% in 2020. The macroeconomic scenario underpinning these budgetary projections is plausible. At the same time, the measures needed to support the planned deficit targets from 2018 onwards have not been sufficiently specified.

               (8)On 12 July 2016, the Council recommended Ireland to achieve an annual fiscal adjustment of 0.6% of GDP towards the medium-term budgetary objective in 2017. Based on the Commission 2017 spring forecast, there is a risk of a significant deviation from the recommended fiscal adjustment over 2016 and 2017 taken together.

               (9)In 2018, in light of its fiscal situation and notably of its debt level, Ireland is expected to further adjust towards its medium-term budgetary objective of a structural deficit of 0.5% of GDP. According to the commonly agreed adjustment matrix under the Stability and Growth Pact, that adjustment translates into a requirement of a nominal growth rate of net primary government expenditure
                  12
                 which does not exceed 2.4% in 2018. It would correspond to an annual structural adjustment of 0.6 % of GDP. The expenditure benchmark reflects an adjustment to correct for a distortion to the 10-year reference rate of potential growth caused by the exceptionally high surge in real GDP growth in 2015. Following the approach taken by the Irish authorities in their Budget 2017 calculations, the Commission has taken the average of potential growth rates in 2014 and 2016. Under unchanged policies, there is a risk of some deviation from the requirement over 2017 and 2018 taken together. At the same time, Ireland is forecast to comply with the transitional debt rule in 2017 and 2018. Overall, the Council is of the opinion that further measures will be needed, notably in 2017, to comply with the provisions of the Stability and Growth Pact. In view of Ireland's current cyclical conditions and the heightened external risks, the use of any windfall gains to further reduce the general government debt ratio would be prudent. However, as foreseen in Regulation (EC) No 1466/97, the assessment of the budgetary plans and outcomes should take account of the Member State’s budgetary balance in light of the cyclical conditions. As recalled in the Commission Communication accompanying these country-specific recommendations, the assessment of the 2018 Draft Budgetary Plan and subsequent assessment of 2018 budget outcomes will need to take due account of the goal to achieve a fiscal stance that contributes to both strengthening  the ongoing recovery and ensuring the sustainability of Ireland's public finances. In that context, the Commission intends to make use of the applicable margin of appreciation in light of the cyclical situation of Ireland.

               (10)Although the economic recovery is robust and output is expected to grow at a solid pace in the years ahead, the outlook has become more uncertain, creating risks for the still fragile public finances. Therefore, more efforts should be taken to make revenue more resilient to economic fluctuations and adverse shocks. To this end, the proposal to introduce a Rainyday fund should be advanced and reliance on highly concentrated and volatile revenue sources should be reduced. A balanced composition of different tax sources and broader tax bases improve revenue stability in the face of economic volatility. However, efforts to broaden the tax base have been limited and recent tax measures have focused on cuts and reliefs. The announced systematic evaluation of the costs and benefits of reduced VAT rates, which apply to an extensive range of sales, is pending. Recurrent property taxation is considered to be one of the most growthfriendly revenue sources. However, Irish revenues from immovable property only amounted to 1.0 % of GDP in 2014, compared to the EU average of 1.6 %. A gradual indexation of property values would help to smooth the local property tax profile by preventing a sudden increase in tax liabilities when properties are revalued in 2019. The differences in the taxation of diesel and gasoline for road users are environmentally unjustified.

               (11)In the past, comprehensive expenditure reviews have focused primarily on reducing government spending to meet overall fiscal targets. There has been little evaluation of the effectiveness and efficiency of expenditure programmes, which has ultimately weakened the reliability of multi-annual spending plans. An appropriately designed spending review, in line with the common Eurogroup principles, would improve expenditure control and could free up resources for much needed public investment to boost growth. The spending review should particularly address the cost-effectiveness of the health sector. Ireland has introduced some important efficiency measures, such as a cost-saving agreement with the pharmaceutical industry, a financial management system, eHealth and activity-based funding. However, more could be done, for example by strengthening the role of primary care as a gatekeeper for Ireland’s overburdened hospitals. Steps towards a universal single-tier health service are fragmented and lack an overarching vision.

               (12)Promoting sustainable and inclusive growth that benefits all groups in society remains a challenge. Unemployment was below the EU average at 6.4 % in March 2017. However, the low work intensity of many households creates concerns that some people are left behind as the recovery continues. From 2013 to 2015, the percentage of the population living in low or very low-work-intensity households fell by just 15 %, whereas the overall unemployment rate over the same period dropped by 28 %. Overall, the welfare system has worked well to contain poverty and inequality and Ireland has taken measures to incentivise employment by tapering the withdrawal of benefits and supplementary payments. However, barriers to inclusive growth still exist. The disparities between the employment rates of low-, medium- and highly-skilled workers are among the highest in the EU. Skills mismatches and skills shortages have emerged in certain areas, while upskilling and reskilling opportunities are insufficient. The labour market and social challenges point to the importance of an integrated approach to training and labour market activation for those furthest from the labour market. Moreover, concerns remain over the quality of childcare provisions, including the availability of fulltime services. As a percentage of wages, net childcare costs in Ireland are among the highest in the EU. The availability and cost of quality fulltime childcare present barriers to female labour market participation and hinder efforts to reduce child poverty, which has fallen slightly but remains higher than the EU average.

               (13)Infrastructure needs should be addressed in order to promote durable and balanced growth. The economic crisis led to a shift in the composition of general government expenditure away from investment and towards current spending. Years of sharply reduced government investment have had a negative impact on the adequacy and quality of infrastructure. The shift in government expenditure has also affected public sector support for research and development with possible implications for the competitiveness of SMEs. Ireland ranks 25th in the EU in public research and development investment as a percentage of GDP. The most severe infrastructure shortcomings are in transport, water services and housing. Demand for new housing currently exceeds supply by a wide margin in the country’s main urban areas. As a result, residential property prices and rents continue to increase rapidly, in turn resulting in a recent high increase in housing exclusion and homelessness. There is currently no evidence of overvaluation, but constraints limiting the supply of housing could generate macro-financial risks if they are not resolved. A coherent and timely spatial plan would help to deliver new homes in the right areas.

               (14)The Irish economy presents a division between the mostly small and medium-sized Irish-owned firms and large multinational companies operating in Ireland. Linkages between multinational companies and Irish-owned firms remain limited. Their export performances and profiles are significantly different, while the productivity gap between them is growing wider. Irish-owned firms present a weaker exporting profile than multinationals established in Ireland. Their exports are heavily concentrated by sector and destination, making them more vulnerable to shocks. Investing in innovation would foster the productivity and exporting potential of Irish firms at a time when diversifying exports and export destinations could help stabilise the performance of Irish firms. Public research and development expenditure remains low. Fully implementing measures to increase public research and development, in particular measures to support the innovation capacity of SMEs, depends on the return to a trend of sustained investment. To stimulate innovation by SMEs, innovation policies could be rebalanced towards more direct forms of funding. Support from the government for business research and development has increasingly relied on research and development tax credits. More targeted policy mixes with more direct funding may better address the needs of Irish young innovative firms and exploit opportunities from the strong investing power of multinational companies. This would serve to facilitate access to global value chains and accelerate knowledge spillovers.

               (15)In an environment of heightened external uncertainty, further progress in reducing non-performing loans is important to ensure the stability of the financial sector. Although progress has been made, high non-performing loans ratios remain a drag on banks’ profitability and an obstacle to the full economic recovery of households and firms. The deleveraging of households and domestic firms continues, but their indebtedness remains one of the highest in the EU at 276.8 % of GDP (September 2016). High corporate debt may hinder firms from borrowing for investment, which in turn also limits banks’ ability to improve their own profitability.

               (16)According to the Central Bank of Ireland, the average non-performing loans ratio of the domestic Irish banks was 14.2 % in September 2016. This is substantially above the EU average of 5.3 %. The pace of resolution of arrears has slowed down somewhat as the remaining long-term arrears are also the most difficult to restructure. The momentum should not be lost: arrears restructuring should be sustainable in the long-term and different forms of debt reduction need to be considered. 14 % of the mortgage stock was in arrears at the end of September 2016, while accounts in arrears of over 2 years represented around 70 % of the total mortgage loan balance. Commercial real estate loans held by domestic banks and business loans also remain areas of concern, with non-performing loans ratios of 32.6 % and 11.8 % respectively. The use of personal insolvency, bankruptcy, examinership and out-of-court arrangements intended to restore households and business to viability remains low and should be better incentivised. After several delays, the central credit register is expected to enter the final phase of its implementation. Its finalisation should be a priority as it will serve as the basis for adequate credit risk assessment of borrowers and ensure prudent future lending.

               (17)Implementation of the 2015 Legal Services Regulation Act started in late 2016. The full implementation of this act will be crucial in Ireland’s efforts to increase competition in the sector because it will allow barristers direct access to the profession, the creation of corporate groups by multidisciplinary practices and the operation in Ireland of alternative business models used in other Member States. Independent legal services are an input to all sectors of the economy and their cost has a bearing on Ireland’s competitiveness. Therefore, it is paramount that the implementation of the act introduces competition-enhancing and cost-reducing provisions following public consultation processes, or incorporates these provisions in regulations to be issued by the Legal Services Regulatory Authority so as to boost competition and reduce costs.

               (18)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Ireland’s economic policy and published it in the 2017 country report. It has also assessed the Stability Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Ireland in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Ireland, 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.

               (19)In the light of this assessment, the Council has examined the Stability Programme and its opinion
                  13
                is reflected in particular in recommendation 1 below.

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

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

               1.Pursue its fiscal policy in line with the requirements of the preventive arm of the Stability and Growth Pact, which translates into a substantial fiscal effort for 2018. Use any windfall gains, such as proceeds from asset sales, to accelerate the reduction of the general government debt ratio. Limit the scope and the number of tax expenditures and broaden the tax base.

               2.Better target government expenditure, by prioritising public investment in transport, water services, and innovation in particular in support of SMEs. Enhance social infrastructure, including social housing and quality childcare; deliver an integrated package of activation policies to increase employment prospects of low-skilled people and to address low work intensity of households.

               3.Encourage a more durable reduction in non-performing loans through resolution strategies that involve write-offs for viable businesses and households, with a special emphasis on resolving long-term arrears.

               Done at Brussels,

                     For the Council

                     The President

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

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

                     (3)
                  COM(2017) 507 final.

                     (4)
                  P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040.

                     (5)
                  COM(2016) 725 final.

                     (6)
                  COM(2016) 728 final.

                     (7)
                  OJ C92/01, 24.3.2017, p. 1.

                     (8)
                  SWD(2017) 73 final.

                     (9)
                  COM(2017) 90 final.

                     (10)
                  Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006, OJ L 347, 20.12.2013, p. 320.

                     (11)
                  COM(2014) 494 final.

                     (12)
                  Net government expenditure is comprised of total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a 4-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

                     (13)
                  Under Article 5(2) of Council Regulation (EC) No 1466/97.


title: DRAFT COUNCIL RECOMMENDATION on the principles of a Community policy with regard to retirement âge (presented by the Commission to the Council)

text:
ARCHIVES HISTORIQUES
DE LA COMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (81) 779
Vol. 1981/0221
 ---pagebreak--- Disclaimer
Conformément au règlement (CEE, Euratom) n° 354/83 du Conseil du 1er février 1983
concernant l'ouverture au public des archives historiques de la Communauté économique
européenne et de la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983,
p. 1), tel que modifié par le règlement (CE, Euratom) n° 1700/2003 du 22 septembre 2003
(JO L 243 du 27.9.2003, p. 1), ce dossier est ouvert au public. Le cas échéant, les documents
classifiés présents dans ce dossier ont été déclassifiés conformément à l'article 5 dudit
règlement.
In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983
concerning the opening to the public of the historical archives of the European Economic
Community and the European Atomic Energy Community (OJ L 43, 15.2.1983, p. 1), as
amended by Regulation (EC, Euratom) No 1700/2003 of 22 September 2003 (OJ L 243,
27.9.2003, p. 1), this file is open to the public. Where necessary, classified documents in this
file have been declassified in conformity with Article 5 of the aforementioned regulation.
In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom 1.
Februar 1983 über die Freigabe der historischen Archive der Europäischen
Wirtschaftsgemeinschaft und der Europäischen Atomgemeinschaft (ABI. L 43 vom 15.2.1983,
S. 1), geändert durch die Verordnung (EG, Euratom) Nr. 1700/2003 vom 22. September 2003
(ABI. L 243 vom 27.9.2003, S. 1), ist diese Datei der Öffentlichkeit zugänglich. Soweit
erforderlich, wurden die Verschlusssachen in dieser Datei in Übereinstimmung mit Artikel 5
der genannten Verordnung freigegeben.
 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                         COM(81)779 final
                                         Brussels - 9th December 1981
                              , /
                        DRAFT COUNCIL RECOMMENDATION
             on the principles of a Community policy with
             regard to retirement âge
                                    y
                 ( presented by the Commission to the Council )
  C0M(81 ) 779 final
 ---pagebreak---    >-     in                      \              I' ? or , tne adaptation cf « or<,r.5
 time ,, the Council stressed the importance it attached to the continuation
 by the Commission of its work on flexible retirement .            The Council considered
 that flexible retirement , which should be voluntary , should be developed in
 conjunction with measures to facilitate a gradual withdrawal from working
  life at the end of the worker 's career , such as part-time work and longer
 holidays for older workers .
          As a follow-up to that Resolution , on 14 July the Commission presented
 a Communication , " Community guidelines on flexible retirement " ( 1 ) which was
 discussed by the Standing Committee on Employment at its meeting on
 11 December 1980 .      A broad consensus emerged to the effect that workers should
 gradually be given the right to choose the time of their retirement , from a given
 age .    This consensus was accompanied by statements of the employers' and
workers'        viewpoints and the Committee considered that in future account should
be taken of specific national circumstances and the fields of competence of the
various parties concerned .         Accordingly , the Commission was invited to continue
 its work in this area and present appropriate proposals .            With respect to
phased retirement ( gradual reduction of working hours at the end of a worker 's
career ) the Committee considered that it could be made the subject of a
subsequent discussion .
2.       The aim of this Recommendation is to reflect this consensus in specific
proposals .       A Council Recommendation seemed the most appropriate instrument in
which to lay down guidelines corresponding to a long-term social policy goal
in the Member States while taking into account specific national circumstances
and the areas of competence of the various parties concerned .
         Similarly , it seemed advisable to make a distinction in the Recommendation
between a long-term commitment on the part of the Member States - the achievement
of the goal - and the short-term commitment relating to more limited obligations .
3.       The long-term commitment is to implement flexible retirement as
a common goal of Member States' social policies .             This means
freedom of choice of the time of retirement from a given age for
the entire working population , both employed and self-employed .
(1 )   COM ( 80 ) 393 final .
                                                                                ./.
 ---pagebreak---                                      - 2 -
To this end , Member States are invited ( part A of the Recommendation ) to adopt
the requisite measures to achieve this goal . This can be done gradually within the
framework of statutory or occupational schemes ( schemes set up under collective
agreement , company schemes , etc .) taking as a basis a certain number of principles
which reflect the recommendations of the International Labour Organization in this
field .
4.      These principles provide for more flexibility in the rules applicable to
the age at which entitlement to a retirement pension is acquired ; the right to
freedom of choice with regard to the age of retirement after a given age ( identical
for men and women in accordance with the principle of equal treatment ); certain
alternative schemes ( e.g. fixed age with the possibility of bringing forward or
deferring application for pension , or pension after a given number of insurance
years ); the right to financial compensation for elderly workers whose working time
is being gradually cut down , the right to pursue an occupation subject to certain
limits when drawing a pension ; and retirement preparation programmes . The conditions
governing the introduction of measures offering financial incentives to encourage
elderly workers to vacate their jobs are indicated but are not regarded as an
integral part of the flexible retirement system .
                                                                           i
5.      The Commission would make a distinction between the application of these
principles , the main concern of which is the improvement of the quality of life and
a greater respect for the wishes of the individual and certain early retirement
schemes which it has promoted or supported in particular sectors ( e.g. steel ,
fishing ) and which , while not running counter to the above principles , are princi
pally employment policy measures .
6.      Part B of the Recommendation envisages a further stage of reflection at the
Community level after a period of two years , when the Member States are asked to
examine and report to the Commission on their retirement systems in the light of the
principles set out in the Recommendation . In the light of this review the Commission
will report back to the Council on the application of flexible retirement ( progress ,
obstacles , difficulties , costs , etc .) and may make further proposals for the
realisation of the common objective , including possibly the fixing of the same
minimum age for retirement in all Member States . The Commission will also consider
at that time measures to extend the availability of phased retirement arrangements
and invites the Member States to give greater attention over the next two years to
                                                                                ./.
 ---pagebreak--- policies and measures designed ,.0 avoid ihe abrupt transition from full-time
employment to retirement and to report to the Commission on their experience at
the end of this period . In the meantime , the Commission will continue and enlarge
its contacts with interested bodies with a view to developing its policy in the
field and awaits with interest the results of the European Parliament 's current
work on " The problem of old age in the Community countries ".
 ---pagebreak---                DRAFT COUNCIL RECOMMENDATION ON THE PRINCIPLES
             OF A COMMUNITY POLICY WITH REGARD TO RETIREMENT AGE
THE COUNCIL OF THE EUROPEAN COMMUNITIES ,
Having regard to the Treaty establishing European Economic Community ,
Having regard to the draft Recommendation presented by the Commission ,
Having regard to the Opinion of European Parliament ,
Having regard to the Opinion of the Economic and Social Committee ,
Whereas on 18 December 1979 the Council adopted a Resolution on the adaptation
of working time ( 1 );
Whereas a broad consensus was noted in the Standing Committee on Employment to the
effect that all workers should gradually be given the right from a certain
age to choose the time of their retirement ( 2 );
Whereas there are a great many arguments in favour of a more flexible approach
to retirement age , which are mainly related to the objective
needs and wishes of the persons concerned, but also to more general policy
considerations ;
Whereas a flexible retirement system would moreover be likely to contribute towards
a solution of the problem of equal treatment for men and women with respect
to retirement age ;
Whereas a trend towards more flexible systems is emerging in the Member States ,
which for the time being continue to provide for a fixed retirement age ;
whereas this trend is manifest in various ways ( provisions for flexible retirement
incorporated in the law , pensions after a certain number of insurance years , opportu
nity to apply for a pension earlier or later than the statutory age , bringing down
the retirement age for certain categories of persons or for certain arduous or dan
gerous occupations , early retirement pensions or guaranteed incomes for elderly wor
kers who agree to leave their job before the statutory retirement age to provide
job opportunities for unemployed workers or workers threatened with dismissal ),
                                                                           ./.
( 1 ) OJ C 2 , 4 January 1980
( 2 ) Standing Committee on Employment , 20th meeting , 11 December 1980
 ---pagebreak--- INVITES THE MEMBER    STATES
to acknowledge flexible retirement , that is freedom to choose the time of
retirement after a given age for all workers , whether employed or self-employed ,
as one of the aims of their social policy ;
RECOMMENDS THE MEMBER STATES
A.      To adopt to this end the necessary measures to introduce flexible
retirement gradually into the framework of statutory or occupational insurance
schemes in accordance with the following principles :
1 . To ensure that retirement is voluntary , the rules governing the age from
    which an old age pension may be drawn should be made more flexible .   To this end
 "*               After a given age - identical for men and women - workers
    should be free to choose the time of their retirement .
 ~ Failing that , and as long as the system stipulates a fixed age for entitle
    ment to a pension , workers should be offered the option , during a specified
    period , of applying for a pension in advance of the statutory age or requesting
    its deferment beyond that age . Reductions made to the amount of pensions taken
    early should not be such as to render pointless the exercise of the option .
  ~ Increased flexibility as regards the age of entitlement to an old age pension
    would also be achieved by a system under which entitlement to a pension
    arose after a given number of years of employment or membership of an insurance
    scheme .
 ---pagebreak---                                      - 3 -
5 . During a given period prior to retirement , elderly workers whose working
    time is gradually being reduced should receive a special allowance
    compensating   partly or in full for the reduction in their earnings , and
    their pension rights should not be impaired .
6 . Financial incentives to promote the early departure of elderly workers
    should only be applied for a limited period in the event of exceptional
    economic circumstances and should not be regarded as an integral part of
    a flexible retirement system .
7 . Workers receiving an old age pension cannot    be excluded from all forms
    of paid employment .
8 . Workers who are within two years of the minimum retirement age should have
    access to appropriate counselling services and retirement preparation
    programmes .
B.     To undertake , as a first stage , an examination of their retirement systems
in the light of these principles over the next two years ; and to examine also
the feasibility of generalising opportunities for phased retirement with a view
to easing the transition out of full-time employment into retirement .
       Member States shall communicate the results of these examinations to the
Commission within two and a half years of the adoption of this Recommendation ,
to enable it to draw up a report for presentation to the Council within a further
six months , on progress made and obstacles encountered in applying flexible
retirement and phased retirement , and to propose any other measures needed to
achieve common objectives and to ease the transition of workers out of full-time
employment into retirement .


                       EUROPEAN
                       COMMISSION
                                               Brussels, 13.5.2015
                                               COM(2015) 273 final
                               Recommendation for a
                        COUNCIL RECOMMENDATION
               on the 2015 National Reform Programme of Slovenia
   and delivering a Council opinion on the 2015 Stability Programme of Slovenia
EN                                                                              EN
 ---pagebreak---                                          Recommendation for a
                                     COUNCIL RECOMMENDATION
                        on the 2015 National Reform Programme of Slovenia
         and delivering a Council opinion on the 2015 Stability Programme of Slovenia
   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
   policies1, 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
   imbalances2, and in particular Article 6(1) thereof,
   Having regard to the recommendation of the European Commission3,
   Having regard to the resolutions of the European Parliament4,
   Having regard to the conclusions of the European Council,
   Having regard to the opinion of the Employment Committee,
   Having regard to the opinion of the Economic and Financial Committee,
   Having regard to the opinion of the Social Protection Committee,
   Having regard to the opinion of the Economic Policy Committee,
   Whereas:
   (1)      On 26 March 2010, the European Council agreed to the Commission’s proposal to
            launch a new strategy for growth and jobs, Europe 2020, based on enhanced
            coordination of economic policies, which will focus on the key areas where action is
            needed to boost Europe’s potential for sustainable growth and competitiveness.
   (2)      On 13 July 2010, the Council, on the basis of the Commission's proposals, adopted a
            recommendation on the broad guidelines for the economic policies of the Member
            States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on
            guidelines for the employment policies of the Member States, which together form
   1
           OJ L 209, 2.8.1997, p. 1.
   2
           OJ L 306, 23.11.2011, p. 25.
   3
           COM(2015) 273
   4
           P8_TA(2015)0067, P8_TA(2015)0068, P8_TA(2015)0069
EN                                                  2                                            EN
 ---pagebreak---         the ‘integrated guidelines’. Member States were invited to take the integrated
        guidelines into account in their national economic and employment policies.
   (3)  On 8 July 2014, the Council adopted a recommendation on Slovenia’s National
        Reform Programme for 2014 and delivered its opinion on Slovenia’s updated
        Stability Programme for 2014. On 28 November 2014, in line with Regulation (EU)
        No 473/20135, the Commission presented its opinion on Slovenia's draft budgetary
        plan for 20156.
   (4)  On 28 November 2014, the Commission adopted the Annual Growth Survey7,
        marking the start of the 2015 European Semester of economic policy coordination.
        On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission
        adopted the Alert Mechanism Report8, in which it identified Slovenia as one of the
        Member States for which an in-depth review would be carried out.
   (5)  On 18 December 2014, the European Council endorsed the priorities for boosting
        investment, accelerating structural reforms and pursuing responsible growth-friendly
        fiscal consolidation.
   (6)  On 26 February 2015, the Commission published its 2015 country report for
        Slovenia 9. The country report assessed progress in addressing the country-specific
        recommendations adopted on 8 July 2014. For Slovenia, the country report also
        includes results of the in-depth review under Article 5 of Regulation (EU) No
        1176/2011. The Commission's analysis leads it to conclude that Slovenia is
        experiencing macroeconomic imbalances, which require decisive policy action and
        specific monitoring. In particular, the rebalancing is ongoing and decisive policy
        actions, improved export performance and growth conditions have reduced risks
        compared to last year, in particular those linked to external sustainability. However,
        weak corporate governance, a high level of state ownership, high corporate leverage,
        and an increasing public debt pose risks for financial stability and growth and
        warrant close attention. The imbalances are therefore no longer considered as
        excessive but continue to deserve close attention.
   (7)  On 30 April 2015, Slovenia submitted its 2015 National Reform Programme and its
        2015 Stability Programme. In order to take account of their interlinkages, the two
        programmes have been assessed at the same time.
   (8)  Slovenia is currently in the corrective arm of the Stability and Growth Pact. In its
        2015 Stability Programme, the government plans to correct the excessive deficit by
        2015, in line with the deadline set by the Council, and to reach the medium-term
        objective – a balanced budgetary position in structural terms – by 2020, i.e. one year
        after the programme period. The government plans to gradually reduce the headline
        deficit to 2.9 % of GDP in 2015 and to 0.9% of GDP in 2019. According to the
        Stability Programme, the government debt-to-GDP ratio is expected to peak in 2015
        at 81.6% before starting to decline. The macroeconomic scenario underpinning these
        budgetary projections is plausible. Based on the Commission's 2015 spring forecast,
        a timely and durable correction of the excessive deficit by 2015 is foreseen. At the
        same time, the fiscal effort is below what is recommended by the Council, based on
   5
       OJ L 140, 27.5.2013, p.11.
   6
       C(2014) 8813 final
   7
       COM (2014) 902
   8
       COM(2014) 904
   9
       SWD(2015) 43 final/2
EN                                             3                                               EN
 ---pagebreak---         the structural balance and the discretionary measures taken. Assuming a timely
        correction of the excessive deficit as planned, Slovenia will be subject to the
        preventive arm of the Pact as of 2016. Measures to support the planned deficit targets
        from 2016 onwards have not been sufficiently specified. Therefore, in the light of the
        Commission's 2015 spring forecast, there appears to be a risk of a significant
        deviation from the required adjustment towards the medium-term objective in 2016
        and further measures will be needed. Based on its assessment of the Stability
        Programme and taking into account the Commission's 2015 spring forecast, the
        Council is of the opinion that there is a risk that Slovenia will not comply with the
        provisions of the Stability and Growth Pact. With respect to the fiscal rules, in 2013
        the parliament approved a constitutional basis for establishing a general government
        budget balance / surplus rule in structural terms. However, the necessary
        implementing legislation has yet to be adopted. Revisions to the Public Finance Act
        are expected to provide the necessary legislative basis for the procedural issues
        underpinning the Fiscal Rules Act.
   (9)  Slovenia has taken action to alleviate pressures on the medium-term sustainability of
        the pension system but key parameters still need to be adjusted to ensure its
        sustainability beyond 2020. The 2013 pension reform has had a positive impact and
        the legal act establishing a demographic fund is expected to be adopted in June 2015.
        However, ensuring the long term sustainability of pensions will require further
        reform. No progress has been made as regards the long-term care reform. At the end
        of 2013, the government adopted a blueprint for long-term care reform but the
        adoption of the legislation implementing the reform has been postponed to the end of
        2015 in order to allow prior decisions on health insurance reform including the
        question of sources to finance overall healthcare and long-term care. Age related
        expenditure on long-term care can be contained by targeting benefits to those most in
        need and by refocusing care provision from institutional to home care.
   (10) A Social Agreement was concluded in January 2015 providing that public sector
        wage growth will lag behind private sector wage growth. The composition and
        indexation of minimum wages are not covered by this agreement. While still
        relatively high compared to the average wage, recent growth of the minimum wage
        has been limited. An evaluation of the 2013 labour market reform shows that labour
        market restrictions have decreased, but structural problems persist as regards the
        long-term unemployment and the low employment rates of low-skilled and older
        workers. Slovenia has undertaken some action to address the skills mismatch and
        numerous other measures are planned until 2020.
   (11) The banking sector has been further stabilised through the recapitalisation of Abanka
        and Banka Celje in 2014. A comprehensive action plan for banks has been finalized
        and submitted to the Prime Minister office in January 2015. The Bank of Slovenia
        has ensured follow-up of the shortcomings identified by the 2013 Asset Quality
        Review and will resume on-site inspections in the first quarter of 2015 to verify
        whether the recommendations have been implemented by banks. The major banks
        have reorganised and reinforced their work-out and restructuring units. However,
        boosting the long-term profitability and reducing non-performing loans in the
        corporate sector are necessary for a healthier banking sector. Both the corporate
        restructuring master plan and a centralised corporate restructuring task force have
        been established. Further deleveraging of the corporate sector, including through the
        Bank Asset Management Company and by full application of the new insolvency
        legislation, would help restore the conditions for a rebound of private investment.
EN                                            4                                                EN
 ---pagebreak---         Bank lending activity continues to decline, mainly affecting SMEs. The recent
        banking sector recapitalisation is expected to show full results only in 2016.
        Restrained bank lending and high interest rates are weighing on the financing
        capacity of SMEs. While the proportion of rejected loan applications has decreased
        over the past six years, the number of SMEs reporting a deterioration in the
        willingness of banks to provide loans has increased substantially and is one of the
        highest in the EU.
   (12) The privatisation programme is progressing, albeit with delays. The restructuring of
        the five major state-owned banks and the wind-down of two smaller domestic banks
        are on track. The Slovenian Sovereign Holding, responsible for the management and
        divestment of state assets, is now fully operational. A draft asset management
        strategy is still to be approved by the Slovenian parliament and this is expected to be
        followed by the release of the divestment schedule for a number of well- targeted
        state-owned assets. A new corporate governance code has been adopted by the
        Slovenian Sovereign Holding in December 2014 and in January 2015 a compliance
        officer was appointed.
   (13) The efficiency of the courts further improved in 2014, although at a slower pace.
        While some progress in reducing the length of judicial proceedings at first instance in
        litigious civil and commercial cases has been made, including in cases under the
        insolvency legislation, the length of proceedings and the number of unresolved cases
        backlogs remain significant.
   (14) An unsupportive business environment in Slovenia is a key factor for low investment
        levels in Slovenian business and the high number of laws and numerous changes in
        the legislation make it difficult to run a business and comply with local regulation.
        The number of regulated professions has decreased from 323 to 242 but remains
        high. Around 25% of measures included in the Single Document to cut
        administrative burden were implemented. Sufficient budgetary autonomy for the
        Competition Protection Agency and institutional independence are provided.
   (15) The new government reiterated its commitment to fight corruption and adopted a
        new two-year programme of 11 perennial measures in January 2015. Some progress
        has been made regarding transparency and accountability. A comprehensive public-
        sector reform is in preparation. No progress has been made regarding reports on
        performance evaluation and quality control procedures.
   (16) In the context of the European Semester, the Commission has carried out a
        comprehensive analysis of Slovenia’s economic policy and published it in the 2015
        country report. It has also assessed the Stability Programme and the National Reform
        Programme and the follow-up given to the recommendations addressed to Slovenia
        in previous years. It has taken into account not only their relevance for sustainable
        fiscal and socio-economic policy in Slovenia but also their compliance with EU rules
        and guidance, given the need to reinforce the overall economic governance of the
        European Union by providing EU-level input into future national decisions. The
        recommendations under the European Semester are reflected in recommendations 1
        to 4 below.
   (17) In the light of the Commission's in-depth review and this assessment, the Council has
        examined the National Reform Programme and the Stability Programme. The
        recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in
        recommendations (1) to (4) below.
EN                                              5                                               EN
 ---pagebreak---    (18)    In the context of the European Semester the Commission has also carried out an
           analysis of the economic policy of the euro area as a whole. On the basis of this
           analysis, the Council has issued specific recommendations for the Member States
           whose currency is the euro. Slovenia should also ensure the full and timely
           implementation of these recommendations.
   HEREBY RECOMMENDS that Slovenia take action within the period 2015-2016 to:
   1.      Ensure a durable correction of the excessive deficit in 2015, and achieve a fiscal
           adjustment of 0.6% of GDP towards the medium-term objective in 2016. Adopt the
           Fiscal Rule Act and revise the Public Finance Act. Advance long-term reform of the
           pension system. By end of 2015 adopt a healthcare and long-term care reform.
   2.      Review, in consultation with the social partners and in accordance with national
           practices, the mechanism for setting the minimum wage, and in particular the role of
           allowances, in light of the impact on in-work poverty, job creation and
           competitiveness. Increase the employability of low skilled and older workers. Take
           measures to address long-term unemployment and provide adequate incentives to
           extend working lives.
   3.      Bring down the level of non-performing loans in banks by introducing specific
           targets. Improve credit risk monitoring capacity in banks. Continue corporate
           restructuring and maintain strong corporate governance in the Bank Asset
           Management Company. Take measures to improve access to finance for SMEs and
           micro companies. Adopt a strategy for the Slovenian Sovereign Holding with a clear
           classification of assets, implement an annual asset management plan and apply
           performance criteria.
   4.      Ensure that the reforms adopted to improve the efficiency of civil justice help reduce
           the length of proceedings.
   Done at Brussels,
                                              For the Council
                                              The President
EN                                               6                                                EN


               EUROPEAN COMMISSION
            Brussels, 13.5.2015
            COM(2015) 261 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2015 National Reform Programme of Croatiaand delivering a Council opinion on the 2015 Convergence Programme of Croatia

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2015 National Reform Programme of Croatia

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

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular Article 9(2) thereof,

               Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances
                  2
               , and in particular Article 6(1) thereof,

               Having regard to the recommendation of the European Commission
                  3
               ,

               Having regard to the resolutions of the European Parliament
                  4
               ,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

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

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

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

               (4)On 28 November 2014, the Commission adopted the Annual Growth Survey
                  5
               , marking the start of the 2015 European Semester of economic policy coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the Commission adopted the Alert Mechanism Report
                  6
               , in which it identified Croatia as one of the Member States for which an in-depth review would be carried out.

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

               (6)On 26 February 2015, the Commission published its 2015 country report for Croatia
                  7
               . This assessed Croatia’s progress in addressing the country-specific recommendations adopted on 8 July 2014. The country report also includes the results of the in-depth review under Article 5 of Regulation (EU) No 1176/2011. The Commission’s analysis leads it to conclude that Croatia is experiencing excessive macroeconomic imbalances which require decisive policy action and specific monitoring. In particular, in a context of subdued growth, delayed restructuring of firms and dismal employment performance, the risks associated with weak competitiveness, large external liabilities and rising public debt coupled with weak public sector governance have increased significantly.

               (7)In March 2015, following the publication the country report, the Croatian authorities engaged in a dialogue with the Commission services on reforms most needed to address the excessive macroeconomic imbalances. The authorities approached the dialogue constructively and announced a number of relevant measures, including reducing parafiscal charges in 2016 and 2017, rationalising the system of state agencies and regional units of the central state administration, incentivising voluntary mergers of local self-government units, reducing legislative uncertainty and strengthening the State Audit Office. Reform plans in several other areas such as reducing administrative burdens on enterprises and improving the governance of state-owned enterprises were spelled out in greater detail. However, the level of ambition remains below expectations in a number of areas, notably as regards tightening early retirement rules and publishing and implementing the findings of the expenditure review, although some additional measures were presented to partly compensate for the shortfall.

               (8)Croatia is currently in the corrective arm of the Stability and Growth Pact. In its 2015 Convergence Programme, the government plans to correct the excessive deficit by 2017, which is not in line with the 2016 deadline recommended by the Council. The government plans to gradually reduce the headline deficit to 5.0% of GDP in 2015, 3.9% in 2016 and further to 2.7% of GDP in 2017. According to the Convergence Programme, the government debt-to-GDP ratio is expected to peak at 92.5% in 2017 and to broadly stabilise at 92.4% of GDP in 2018. The macroeconomic scenario underpinning these budgetary projections seems somewhat favourable, as growth is comparable while the underlying consolidation effort is higher in the programme than in the Commission forecast. Measures to support the planned deficit targets from 2015 onwards are only partially specified. Based on the Commission's 2015 spring forecast, a timely and durable correction of the excessive deficit by 2016 is not expected. Based on the amount of discretionary measures taken, the fiscal effort in 2014 was in line with the Council recommendation. This is also the case in cumulative terms over 2014 and 2015, in spite of the projected shortfall in 2015. However, the (adjusted) change in the structural balance over 2014-2015 is below the recommended value. In 2016, the fiscal effort is below the Council recommendation. Therefore, further structural measures will be needed. Based on its assessment of the Convergence Programme and taking to account the Commission's 2015 spring forecast, the Council is of the opinion that there is a risk that Croatia will not comply with the provisions of the Stability and Growth Pact.

               (9)On 23 April 2015, Croatia submitted its 2015 National Reform Programme and its 2015 Convergence Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

               (10)Croatia is currently reviewing its expenditure with a view to achieving efficiencies, in particular in wage, social security and subsidy outlays, and providing sufficient fiscal space to prioritise growth-enhancing expenditure and investment. Croatia’s revenues from recurrent taxes on real estate as a proportion of GDP are among the lowest in the EU. Steps have been taken over the last year to improve tax compliance, including measures to address VAT fraud, and action is now needed. Croatia’s fiscal framework has been bolstered by recent reforms, but significant challenges remain. Weaknesses in relation to effective expenditure control and the consistent application of budgetary constraints negatively impact fiscal policy-making and audit findings. The rapidly rising public debt calls for a much more active approach to public debt management.

               (11)The pension system suffers from a large number of early retirees, an excessively generous system of early pensions for certain professions, and numerous special pension schemes. Early exits are facilitated by comparatively low pension reductions, or none at all for certain workers. The gap between the minimum early and statutory retirement ages is also high compared with an EU average of less than three years. Moreover, the system is highly fragmented, which squeezes out spending on standard pensions. As a result, the benefit ratio in the pension system is lower than in most Member States, despite comparable expenditure. As regards the healthcare sector, recurrent arrears continue to pose fiscal risks. Measures have been initiated to rationalise hospital funding, but there are implementation risks. The 10 % budget increase covers funding needs only partially; further efficiency savings will have to be made to ensure the full elimination of arrears by 2017.

               (12)Limited wage adjustment in the post-crisis period exacerbated the negative impact on employment. The comprehensive analysis of wage-determination and wage-setting practices completed in 2014 revealed that the system was not flexible to adapt to changes in the macroeconomic environment. Particular weaknesses relate to large disparities between the private and the public sectors, including state owned enterprises, the extension of collective agreements to non-signatory parties and the difficulties related to the termination of obsolete agreements. The analysis needs to be followed up by concrete policy action. It is also important to monitor the effects of the 2013-2014 labour market reform.

               (13)The labour force is negatively affected by a rapidly ageing population coupled with low activity rates, in particular for young people and workers over the age of 50. Despite the increased scope and expenditure of active labour market policies,  their outreach remains insufficient as regards the longterm unemployed, older workers and young people not in education, employment or training.  The tertiary education rate is one of the lowest in the EU. Skills mismatches and weaknesses in the education and training system act as deterrents for higher education attainment. The size of the informal economy remains a persisting challenge and results in a high incidence of undeclared work. The measures that the commission to combat undeclared work identified at the end of 2014 now need to be implemented. There are currently over 80 different social benefits and programmes. The consolidation of benefits has started, but further reform efforts are needed in 2015 to improve the coverage and adequacy of benefits.

               (14)The distribution of competences between national and local level is complex and fragmented, which undermines the management of public finances and efficient public expenditure. The current attribution of policy functions and administrative weaknesses in the local authorities directly affect a number of areas, such as tax collection, the provision of social benefits, the management of European Structural and Investment Funds, public procurement and the provision of public services. As a short-term measure, the authorities plan to establish mechanisms that would encourage voluntary mergers or coordination of self-government units. In the central government, the reform and rationalisation of the system of state agencies has been brought forward on the basis of the analysis completed in 2014.

               (15)Croatia’s business environment suffers from major institutional shortcomings, including regulatory instability, weak legislative quality control, high compliance costs, discriminatory practices and excessive barriers for service providers, high administrative burdens, a plethora of parafiscal charges, low transparency and predictability in the working of administrative bodies, in particular at local level, unevenly developed electronic communication channels, and long judicial proceedings, in particular in commercial courts, where an upgrade of case management is needed. The new anti-corruption strategy lacks focus and a sufficient level of detail; this should be addressed in an action plan to implement the strategy.

               (16)The supervision of public enterprises is incomplete as regards companies established at local level and subsidiaries of major public enterprises. The authorities plan to reduce the number of ‘strategic’ companies and to step up the privatisation agenda. Further progress on the quality of governance is needed, including as regards strengthening and harmonising surveillance across various state-owned enterprises. The nomination of board members lacks transparency and competency requirements are relatively weak, which hampers a sound management of public property.

               (17)Putting in place an efficient and transparent early-rescue and insolvency framework is a key prerequisite for alleviating the considerable deleveraging pressure faced by Croatian businesses and fostering a culture of early restructuring and ‘second chance’. An assessment of the pre-insolvency legislation shows that the ex ante efficiency of the current legislative framework is among the lowest in the EU. A reform of the insolvency framework has been initiated, with parliamentary adoption planned in the first half of 2015. The Croatian Bank for Reconstruction and Development could play a crucial role in Croatia’s recovery. It is directly exposed to credit risk, which might affect public finances. It is important that it be placed under prudential supervision and strong corporate governance. There is also scope to improve the structure and transparency of its management accountability arrangements. Following the emergence of currency and currencyinduced credit risk, a long-term solution is needed that is proportional and equitable and has a solid legal basis and a focus on helping the most distressed borrowers.

               (18)In the context of the European Semester, the Commission has carried out a comprehensive analysis of Croatia’s economic policy and published it in the 2015 country report. It has also assessed the Convergence Programme and the National Reform Programme and the follow-up given to the recommendations addressed to Croatia in previous years. It has taken into account not only their relevance for sustainable fiscal and socio-economic policy in Croatia but also their compliance with EU rules and guidance, given the need to strengthen the overall economic governance of the European Union by providing EU-level input into future national decisions. The recommendations under the European Semester are reflected in recommendations 1 to 6 below.

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

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

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

               1.Ensure a durable correction of the excessive deficit by 2016 by taking the necessary measures in 2015 and reinforcing the budgetary strategy for 2016. Publish and implement the findings of the expenditure review. Improve control over expenditure at central and local level, in particular by establishing a sanctioning mechanism for entities breaching budgetary limits. Adopt the Fiscal Responsibility Act and strengthen the capacity and role of the State Audit Office. Introduce a recurrent property tax and improve VAT compliance. Reinforce public debt management, in particular by publishing on an annual basis a debt management strategy and ensuring adequate resourcing.

               2.Discourage early retirement by raising penalties for early exits. Improve the adequacy and efficiency of pension spending by tightening the definition of arduous and hazardous professions. Tackle the fiscal risks in healthcare.

               3.Tackle the weaknesses in the wage-setting framework, in consultation with the social partners and in accordance with national practices, to foster the alignment of wages with productivity and macroeconomic conditions. Strengthen incentives for the unemployed and inactive to take up paid employment. Based on the 2014 review, carry out the reform of the social security system and further consolidate social benefits by improving targeting and eliminating overlaps.

               4.Reduce the extent of fragmentation and overlap between levels of central and local government by putting forward a new model for functional distribution of competencies and by rationalising the system of state agencies. Increase transparency and accountability in the public corporate sector, in particular as regards managerial appointments and competency requirements. Advance the listing of minority packages of shares of public companies and privatisations.

               5.Significantly, reduce parafiscal charges and remove excessive barriers for service providers. Identify and implement steps to improve the efficiency and quality of the justice system, in particular commercial courts.

               6.Reinforce the pre-insolvency and insolvency frameworks for businesses in order to facilitate debt restructuring and put in place a personal insolvency procedure. Strengthen the capacity of the financial sector to support the recovery in view of challenges from high non-performing corporate loans and foreign currency mortgage loans, and weak governance practices in some institutions.

               Done at Brussels,

                     For the Council

                     The President

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

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

                     (3)
                  COM(2015) 261.

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

                     (5)
                  COM(2014) 902.

                     (6)
                  COM(2014) 904.

                     (7)
                  SWD(2015) 30 final.

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


               EUROPEAN COMMISSION
            Brussels, 22.5.2017
            COM(2017) 513 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2017 National Reform Programme of Latviaand delivering a Council opinion on the 2017 Stability Programme of Latvia

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2017 National Reform Programme of Latvia

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

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies,
                  1
                and in particular Article 5(2) thereof,

               Having regard to the recommendation of the European Commission,
                  2

               Having regard to the resolutions of the European Parliament,
                  3

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

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

               (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, Latvia should ensure the full and timely implementation of the Recommendation for the euro area which is reflected in recommendations 1 to 2 below.

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

               (4)On 20 April 2017, Latvia submitted its 2017 National Reform Programme and its 2017 Stability Programme. To take account of their interlinkages, the two programmes have been assessed at the same time.

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

               (6)Latvia is subject to the preventive arm of the Stability and Growth Pact. In its 2017 Stability Programme, the government plans a deterioration of the headline balance from a balanced position in 2016 to a deficit of 0.8% of GDP and of 1.6% of GDP in 2017 and 2018 respectively, as a result of a significant tax reform, followed by an improvement to a deficit of 0.5% of GDP in 2020. The Stability Programme estimates the structural balance to deteriorate from 0.2% of GDP in 2016 to -1.7% of GDP in 2018 and to reach -0.8% of GDP in 2020. This path is consistent with the medium-term objective of a structural deficit of 1% of GDP and the allowed deviations based on the pension reform and the structural reform clause for the healthcare sector. The recalculated
                  10
                structural balance is estimated to increase from    -1.9% of GDP in 2017 to -2.3% of GDP in 2018, before declining to -0.2% of GDP in 2020. According to the Stability Programme, the general government debt-to-GDP ratio is expected to stay around 40% of GDP. The programme's GDP growth projections are broadly in line with the Commission forecast for 2017, but they appear markedly favourable for 2018.

               (7)On 12 July 2016, the Council recommended Latvia to ensure that the deviation from the medium-term budgetary objective in 2017 is limited to the allowances linked to the systemic pension reform and the major structural reform in the healthcare sector. Taking into account these allowances, the structural balance would be allowed to deteriorate by maximum 1.0% of GDP in 2017. Based on the Commission 2017 spring forecast, Latvia is projected to comply with that requirement in 2017. In 2018, Latvia should achieve its medium-term objective, taking into account the allowances related to the implementation of the systemic pension reform granted for 2016 and related to the structural reform granted for 2017, as temporary deviations are carried forward for a period of three years. Based on the Commission 2017 spring forecast, this is consistent with a maximum nominal growth rate of net primary government expenditure
                  11
                of 6.0% in 2018, corresponding to deterioration in the structural balance of 0.3% of GDP. Under unchanged policies, Latvia would be at risk of a significant deviation from that requirement. Overall, the Council is of the opinion that further measures will be needed in 2018 to comply with the provisions of the Stability and Growth Pact.

               (8)Income inequality in Latvia is high. The ratio of incomes of the richest 20 % of households to that of the poorest 20 % stood at 6.5 in 2015, among the highest in the EU, although the figure decreased slightly in 2016. The difference between income inequality before and after taxes and social transfers is among the smallest in the EU. Latvia’s tax system is less progressive than in other EU Member States, contributing to the high inequality and in-work poverty. The tax wedge on low-wage earners remains among the highest in the EU, while the revenue potential of taxes which are less detrimental to growth is underused. The low tax revenue share in GDP limits resources for sustainable delivery of public services. Despite some progress in fighting tax evasion, tax compliance remains a serious challenge. The Stability Programme announced the introduction of a tax reform. The key measures include a reduction of the standard rate of personal income tax from 23% to 20%, an increase in the income-differentiated basic allowance, an introduction of 0% corporate income tax rate for reinvested profits and aligning of capital tax rates at 20%. The reform addresses the country specific recommendation in so far as that the tax wedge on low-income earners is reduced. However, the tax reform is limited in terms of shifting taxation to sources less detrimental to growth and achieving the stated policy objective of increasing tax revenue share in GDP.

               (9)Weaknesses in basic social safety nets contribute to high poverty and inequalities, including for people with disabilities and the elderly. Poverty rates for people with disabilities are among the highest in Europe. The low adequacy of social assistance benefits that has not improved since 2009, and of pensions does not provide effective protection against poverty and social exclusion. The absence of minimum income level reform, announced in 2014, but never implemented, negatively affects the poorest households, although medium-term plans on minimum income support are in preparation.

               (10)With a declining labour force, employment growth has been weak, while unemployment has been falling only slowly. Employment prospects are better in centres of economic activity and for high-skilled workers, whereas unemployment is more prevalent among the low-skilled and those living in rural areas. In this context, upskilling the workforce will contribute to addressing these issues. However, even though the attractiveness of vocational education has improved, the curriculum reform aligning education with contemporary skills requirements has made limited progress. The regulatory framework for work-based learning has been put in place and an active participation of social partners and companies in its implementation is warranted. Moreover, involvement of the unemployed in active labour market measures is lower than in most other EU Member States but measures have been taken to improve this situation and they are worth pursuing. The participation in lifelong learning remains low.

               (11)Although the Latvian authorities have successfully initiated relevant reforms of the healthcare system, large out-of-pocket payments, long waiting lines, low level of public spending and inefficient allocation of services limit access to healthcare. Quota controlled public spending leads to delayed treatment and patients either have to wait a long time or pay for the service out-of-pocket, which leaves part of the population with unmet healthcare needs. Initial steps have been taken to reform the quality assurance system and progress should continue to improve patient and population outcomes. There is some progress in increasing the efficiency of the healthcare system but further rationalisation of the hospital sector, improved access to outpatient and primary care and a more efficient link between budget allocation and service quality and costs are needed.

               (12)Latvian authorities tend to make regular recourse to public procurement procedures for the purchases made in the healthcare sector, but further efficiency gains could be achieved through regular use of e-procurement and central purchasing, making public expenditure more transparent and efficient.

               (13)Weaknesses in regulatory quality and low public administration efficiency and effectiveness have a negative impact on the business environment. In 2016 the government presented an ambitious reform plan for a leaner and more professional public sector, aiming at improving efficiency through reductions in staff and centralisation of support functions, strengthening performance based payment and increasing transparency. This plan is limited to the central administration, while significant efficiency gains may also be realised at municipal level.

               (14)Corruption continues to hamper Latvia’s business environment, and the system for preventing conflicts of interest remains rigid and formalistic, with insufficient verification. Although the reform of the insolvency system has been largely completed, its effective implementation needs to be carefully monitored to address the limited number of restructuring cases and low recovery rate of assets.

               (15)Large-scale reforms of higher education and public research were introduced in the past three years to consolidate research institutions and to increase the quality and relevance of their output. However, the governance and the organisational structure of Latvian public research funding remain inefficient, with funding functions scattered between many institutions. Inefficient funding for public research contributes to a very low scientific performance, a lack of skilled human resources in both public and private sectors and low levels of public-private cooperation. Latvia’s business R&D intensity remains one of the lowest in the EU.

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

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

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

               1.Pursue its fiscal policy in line with the requirements of the preventive arm of the Stability and Growth Pact, which implies to achieve its medium term budgetary objective in 2018, taking into account the allowances linked to the implementation of the systemic pension reform and of the structural reforms for which a temporary deviation is granted. Reduce taxation for low-income earners by shifting it to other sources that are less detrimental to growth and by improving tax compliance.

               2.Improve the adequacy of the social safety net and up-skill the labour force by speeding up the curricula reform in vocational education. Increase cost-effectiveness and access to healthcare, including by reducing out of pocket payments and long waiting times.

               3.Increase efficiency and accountability in the public sector, notably by simplifying administrative procedures and strengthening the conflict of interest prevention regime, including for insolvency administrators.

               Done at Brussels,

                     For the Council

                     The President

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

                     (2)
                  COM(2017) 513 final.

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

                     (4)
                  COM(2016) 725 final.

                     (5)
                  COM(2016) 728 final.

                     (6)
                  OJ C92/01, 24.3.2017, p. 1.

                     (7)
                  SWD(2017) 79 final.

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

                     (9)
                  COM(2014) 494 final.

                     (10)
                  Cyclically-adjusted balance net of one-off and temporary measures, recalculated by the Commission using the commonly agreed methodology.

                     (11)
                  Net government expenditure is comprised of total government expenditure excluding interest expenditure, expenditure on Union programmes fully matched by Union funds revenue and non-discretionary changes in unemployment benefit expenditure. Nationally financed gross fixed capital formation is smoothed over a 4-year period. Discretionary revenue measures or revenue increases mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted out.

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