               EUROPEAN COMMISSION
            Brussels, 20.5.2020
            COM(2020) 515 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2020 National Reform Programme of Lithuania and delivering a Council opinion on the 2020 Stability Programme of Lithuania

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2020 National Reform Programme of Lithuania and delivering a Council opinion on the 2020 Stability Programme of Lithuania

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

               Having regard to 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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 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. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it did not identify Lithuania as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

               (2)The 2020 country report for Lithuania
                  3
                was published on 26 February 2020. It assessed Lithuania’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019
                  4
               , the follow-up given to the recommendations adopted in previous years and Lithuania's progress towards its national Europe 2020 targets.

               (3)On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs, their incomes and companies’ business. It has delivered a major economic shock that is already having serious repercussions in the European Union. On 13 March 2020, the Commission adopted a Communication
                  5
                calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

               (4)Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

               (5)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause of the Stability and Growth Pact
                  6
               . The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn. In its Communication, the Commission shared with the Council its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the current conditions permit activation of the clause. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

               (6)Continued action is required to limit and control the spread of the pandemic, strengthen the resilience of the national health systems, mitigate the socio-economic consequences through supportive measures for business and households and to ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to get back to a normal functioning of our societies and economies and to sustainable growth, integrating inter alia the green transition and the digital transformation, and drawing all lessons from the crisis.

               (7)The COVID-19 crisis has highlighted the flexibility that the single market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the single market from functioning normally must be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector, which include in particular improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies. They are key elements for developing broader crisis preparedness plans.

               (8)The Union legislator has already amended the relevant legislative frameworks
                  7
                to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash flow pressures, Member States can also benefit from a 100% co-financing rate from the Union budget in the 2020-2021 accounting year. Lithuania is encouraged to make full use of those possibilities to help the individuals and sectors most affected by the challenges.

               (9)The socio-economic consequences of the pandemic are likely to be unevenly distributed across Lithuanian sectors and regions due to different specialisation patterns. This entails a risk of widening disparities within Lithuania. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

               (10)On 15 May 2020, Lithuania submitted its 2020 National Reform Programme and, on 30 April 2020, its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (11)Lithuania is currently in the preventive arm of the Stability and Growth Pact.

               (12)In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 0,3% of GDP in 2019 to a deficit of 11,4% of GDP in 2020. The deficit is projected to decline to 3,9% of GDP in 2021. After increasing to 36,3% of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 50,6% in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty due to the COVID-19 pandemic.

               (13)In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Lithuania has adopted budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme, those budgetary measures amounted to 6,8% of GDP. The measures include tax deferrals, additional funding to buy medical supplies, subsidies to sustain jobs and social benefits to the self-employed and employees affected by the COVID-19 virus. As the Commission analysis of the design and implementation of some measures point to a relatively low potential take-up, the Commission assumed a smaller impact of the government measures on the public finances. In addition, Lithuania has announced discretionary measures that, while not having a direct budgetary impact, will contribute to the crisis response, including supporting liquidity to businesses, which the 2020 Stability Programme estimates at 3,8% of GDP. Those measures include loan guarantees (2,9% of GDP). Overall, the measures taken by Lithuania are in line with the guidelines set out in the Commission Communication on a coordinated economic response to the COVID-19 outbreak. The full implementation of those measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

               (14)Based on the Commission 2020 spring forecast under unchanged policies, Lithuania’s general government balance is forecast at -6,9% of GDP in 2020 and -2,7% in 2021. The general government debt ratio is projected to remain below 60 % of GDP in 2020 and 2021.

               (15)On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty due to Lithuania’s planned breach of the 3% of GDP deficit threshold in 2020. Overall, the analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is not fulfilled.

               (16)According to the Commission Spring 2020 forecast, Lithuania’s GDP is set to contract by 8% which is projected to be followed by a rapid recovery of 7,5% in 2021. In order to respond to the COVID-19 outbreak and to cushion the economic fallout, Lithuania put forward the ‘Plan for Economic Stimulus and Mitigation of Consequences of COVID-19 Transmission’ on 16 March. The plan’s size amounts to EUR 2.5 billion or 6.3% of the country’s gross domestic product (GDP), and includes up to EUR 500 million or 1.3% of GDP to ensure necessary resources for the health system. A further EUR 500 million was allocated to protect jobs and income. The capacity of the state guarantee funds was increased by EUR 500 million, and additional state guarantees amounting up to EUR 500 million were approved to stimulate the economy. In April, the European Commission approved several Lithuanian aid schemes to support the Lithuanian economy in the context of the COVID-19 outbreak. These schemes are designed to help businesses cover immediate working capital needs and continue their activities during and after the pandemic. Additionally, the Bank of Lithuania relaxed some capital requirements for commercial banks to increase lending to the real economy.

               (17)Health outcomes in Lithuania persistently lag behind those in other Member States, due in part to suboptimal efficiency of the health system, which suffers from low funding. The current pandemic has subjected the system to additional pressure and highlighted further structural challenges which include slow progress in improving quality of services, underinvestment in primary healthcare and no progress in adapting the hospital network to render it more efficient and responsive to needs.  The COVID-19 crisis is also exposing health inequalities related to workforce shortages and geographical mismatches between services and needs. Lithuania needs to mobilise the resources needed to tackle the current crisis and to improve the resilience of its health systems in future. While immediate action is focusing on strengthening capacities in terms of health workers, critical medical supplies and equipment in order to save lives during the pandemic, longer term investments should  be scaled up to improve the resilience of the health system so that it can sustain operations, resume its optimal performance and prepare itself for new shocks. This will require allocating sufficient resources to improve  the accessibility, efficiency, and quality of the health system, so it can better respond to the challenges of growing chronical conditions, aging and persisting heath inequalities. Primary care and the development of e-health have a central role to play in this regard. Lithuania should also ensure that recent improvements to the affordability of healthcare are not undermined. Finally, future resilience will also require enhancing the system’s ability to reduce unhealthy lifestyles (one of the other important factors behind poor health outcomes in Lithuania) and greater efforts to prepare the long-term care sector to deal with the ageing population.

               (18)Before the COVID-19 pandemic, labour market participation was high and unemployment was low, but this crisis has posed new challenges.With the help of Union funding, Lithuania has implemented a short-time work scheme to mitigate the effects of the pandemic on employment and introduced a number of other measures to mitigate the negative effects on businesses and the self-employed. Before the crisis, the coverage of Active Labour Market Policy measures was decreasing, and participation in adult learning remained low. However, higher coverage of Active Labour Market Policy measures and other measures to reskill and upskill the workforce will be needed to help the unemployed to return to the labour market as early as possible. Strengthening social partners' capacity is important to ensure their meaningful and timely involvement in the design of the exit and recovery process.

               (19)Whilst steps were taken before the crisis to address the risk of poverty and social exclusion, for example by increasing universal child benefits and pensions, poverty and income inequality are still among the highest in the EU. Lithuania has comparatively low public expenditure on social protection, and the impact of social transfers on poverty reduction is low, and assessed as critical on the Social Scoreboard. The low progressivity and ability to redistribute of the tax and benefit system limits the country’s ability to finance public goods and services, and to reduce poverty and income inequality.  The negative effect of the COVID-19 pandemic on employment and household income is likely to aggravate these problems. Temporary measures such as revising the eligibility rules, the amounts and duration of some benefits, may be  needed to ensure that the situation of those most affected by the pandemic does not deteriorate. The social safety net  should be extended to support  all groups, including the self-employed, atypical workers and the most vulnerable people. The provision of the main social services and social housing needs to be strengthened to support those in need.

               (20)Liquidity support to businesses through public sector loans and guarantees, with a focus on small- and medium-sized enterprises (SMEs), has been of utmost importance, but the distribution of liquidity support to firms must be effectively and swiftly implemented by intermediaries and loan conditions must take account of to the crisis situation. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account. Allowing deferred payments of taxes and social contributions and speeding up contractual payments by public authorities can also help improve the cash-flow of SMEs. Newly-founded start-ups and scale-ups may need specific support, e.g. in the form equity stakes by public institutions and incentives for venture capital funds to increase their investments in these firms. Efforts should be maintained to reduce unnecessary regulatory and administrative burdens and to offer efficient digital public services for citizens and businesses.

               (21)Lithuania should ensure that its measures to promote economic recovery are forward-looking and facilitate the digital and green transitions, where there are a number of challenges to be tackled. For the former, digital skills are below the EU average, with SMEs reporting considerable difficulties in recruiting for ICT vacancies. While fibre deployment is above EU average, both for urban and rural areas, fixed broadband coverage and related take-up is very low and wide gaps remain between the cities and rural areas.

               (22)To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. As regards the green transition, total greenhouse gas emissions in Lithuania remain largely unchanged since 2010. Lithuania’s resource productivity is one of the lowest in the EU and circular (secondary) material use is well below the EU average. In line with Lithuania’s National Energy and Climate Plan, improving the energy performance of buildings thanks to energy efficiency and renewable energy solutions, modernising heating systems and improving the sustainability of the transport sector, would significantly contribute to decarbonising the economy. Targeted public and private investments aimed at tackling these issues, and others with a significant environmental and health impact, can promote growth and resilience, and help ensure a sustainable recovery from the crisis. Investments which have already been planned allow for the swift identification of projects which could be front-loaded and contribute to economic recovery, for  example in building renovation and renewable energy. Preparatory work for medium-term recovery measures can draw on Member States’ National Energy and Climate Plans, list of Projects of Common Interest, and infrastructure development plans. Furthermore, the Rail Baltica project and the energy interconnection projects are Lithuania’s key investment priorities aimed at improving its safety and integration into the EU single market. The programming of the Just Transition Fund for the period 2021-2027 could help Lithuania to address some of the challenges posed by the transition to a climate neutral economy, in particular in the territories covered by Annex D to the country report. This would allow Lithuania to make the best use of that fund.

               (23)While the present recommendations focus on tackling the socio-economic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations adopted by the Council on 9 July 2019 also covered reforms that are essential to address medium- to long-term structural challenges. Those recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester annual cycle. That also applies to recommendations regarding investment-related economic policies. The latter recommendations should be taken into account for the strategic programming of cohesion policy funding post-2020, including for mitigating measures and exit strategies with regard to the current crisis.

               (24)The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. Member States have taken stock of progress regarding United Nations’ Sustainable Development Goals (SDGs) implementation in their 2020 National Reform Programmes. By ensuring the full implementation of the recommendations below, Lithuania will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

               (25)Close coordination between economies in the economic and monetary union is key to achieve a swift recovery from the economic impact of the COVID-19. Lithuania should, as a Member State whose currency is the euro – and taking into account political guidance by the Eurogroup – ensure its policies remain consistent with the euro area recommendations and coordinated with those of the other euro area Member States.

               (26)In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Lithuania’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme and the 2020 National Reform Programme and the follow-up given to the recommendations addressed to Lithuania in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Lithuania, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

               (27)In the light of that assessment, the Council has examined the 2020 Stability Programme and its opinion
                  8
                is reflected in particular in recommendation (1) below,

               HEREBY RECOMMENDS that Lithuania takes action in 2020 and 2021 to:

               1.In line with the general escape clause, take all necessary measures to effectively address the pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Strengthen the resilience of the health system, including by mobilising adequate funding and addressing shortages in the health workforce and of critical medical products. Improve the accessibility and quality of health services.

               2.Mitigate the impact of the crisis on employment. Increase the funding and coverage of active labour market policy measures and promote skills. Ensure the coverage and adequacy of the social safety net and improve the effectiveness of the tax and benefit system to protect against poverty.

               3.Support liquidity for businesses, especially for small- and medium-sized enterprises and export-oriented sectors. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on the coverage and take-up of very high-capacity broadband, on clean and efficient production and use of energy, and sustainable transport. Promote technological innovation in small and medium-sized enterprises.

               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)

                        SWD(2020) 514 final.

                     (4)

                        OJ C 301, 5.9.2019, p. 117.

                     (5)

                        COM(2020) 112 final.

                     (6)

                        COM(2020) 123 final.

                     (7)

                        Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5) and Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

                     (8)

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


               EUROPEAN COMMISSION
            Brussels, 20.5.2020
            COM(2020) 520 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2020 National Reform Programme of Austria and delivering a Council opinion on the 2020 Stability Programme of Austria

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2020 National Reform Programme of Austria and delivering a Council opinion on the 2020 Stability Programme of Austria

               THE COUNCIL OF THE EUROPEAN UNION,

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

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  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 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 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. On 17 December 2019, 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.

               (2)The 2020 country report for Austria
                  2
                was published on 26 February 2020. It assessed Austria’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019
                  3
               , the follow-up given to the recommendations adopted in previous years and Austria’s progress towards its national Europe 2020 targets.

               (3)On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs, their incomes and companies’ business. It has delivered a major economic shock that is already having serious repercussions in the European Union. On 13 March 2020, the Commission adopted a Communication
                  4
                calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

               (4)Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

               (5)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause of the Stability and Growth Pact
                  5
               . The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn. In its Communication, the Commission shared with the Council its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the current conditions permit activation of the clause. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

               (6)Continued action is required to limit and control the spread of the pandemic, strengthen the resilience of the national health systems, mitigate the socio-economic consequences through supportive measures for business and households and to ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to get back to a normal functioning of our societies and economies and to sustainable growth, integrating inter alia the green transition and the digital transformation, and drawing all lessons from the crisis.

               (7)The COVID-19 crisis has highlighted the flexibility that the single market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the single market from functioning normally must be removed as soon as they are no longer indispensable. The current crisis has shown the need for strong crisis preparedness plans in the health sector in particular, which include in particular improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies. They are key elements for developing broader crisis preparedness plans.

               (8)The Union legislator has already amended the relevant legislative frameworks
                  6
                to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash flow pressures, Member States can also benefit from a 100% co-financing rate from the Union budget in the 2020-2021 accounting year. Austria is encouraged to make full use of those possibilities to help the individuals and sectors most affected by the challenges.

               (9)The socio-economic consequences of the pandemic are likely to be unevenly distributed across regions due to different specialisation patterns in particular in regions markedly relying on tourism. This entails the risk of widening regional disparities within Austria. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

               (10)On 14 April 2020, Austria submitted its 2020 National Reform Programme and, on 30 April 2020, its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (11)Austria is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

               (12)In its technical update to the 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 0,7% of GDP in 2019 to a deficit of 8,0% of GDP in 2020. The deficit is projected to decline to 1,9% of GDP in 2021. After decreasing to 70,4% of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 81,4% in 2020 according to the 2020 Stability Programme. The macroeconomic and fiscal outlook is affected by high uncertainty due to the COVID-19 pandemic.

               (13)In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Austria has adopted budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programmes, those budgetary measures amounted to 5,0% of GDP. The measures include strengthening health care services, emergency aid for distressed companies and short-time work arrangements. In addition, Austria has announced measures that, while not having a direct budgetary impact, will contribute to support liquidity to businesses, which the 2020 Stability Programme estimates at 5,0% of GDP. Those measures include tax deferrals for personal and corporate income taxes (2,6% of GDP) and loan guarantees (2,4% of GDP). Overall, the measures taken by Austria are in line with the guidelines set out in the Commission Communication on a coordinated economic response to the COVID-19 outbreak. Full implementation of those measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

               (14)Based on the Commission 2020 spring forecast under unchanged policies, Austria’s general government balance is forecast at -6,1% of GDP in 2020 and -1,9% in 2021. The general government debt ratio is projected to reach 78,8% of GDP in 2020 and 75,8% in 2021.

               (15)On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty due to Austria’s planned breach of the 3% of GDP deficit threshold in 2020. Overall, the analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is not fulfilled.

               (16)The Austrian government has taken unprecedented measures to control the spread of COVID-19. It has introduced strict quarantine and social distancing rules and made substantial funds available for the health system to purchase equipment and supplies, reinforce laboratory capacity, and strengthen staffing capability. Primary health care has come under exceptional pressure from an unprecedented increase in the need for teleconsultations, medical appointments and requests for home visits. The rapid COVID-19 outbreak has strongly affected Austria’s economy. National and international containment measures against the virus have hit both the demand and supply side, leading to a broad-based downturn. GDP is therefore projected to contract by 5½% in 2020, more than during the economic and financial crisis in 2008-2009. Given the relatively rapid fall in new infections, Austria was one of the first European countries to announce a relaxation of containment measures beginning in mid-April. To avoid long-lasting economic damage and to cushion the employment and social impacts of the crisis, the government has adopted a comprehensive package of measures to support the Austrian economy (currently EUR 43 billion, approximately 10% of GDP). The package includes a short-time work scheme (Kurzarbeit), where working hours can be reduced by up to 90% on average over a given period and employers are reimbursed 80% to 90% of the employee’s last net income, dependent on last gross income. The comprehensive set of measures for businesses aims to prevent temporarily liquidity problems and provides direct support especially to hard-hit enterprises and industries with a particular focus on small and medium sized enterprises (SME). These include transfers, liquidity support through loans, guarantees, equity injections and tax deferrals. In the process of designing and implementing these measures the resilience of the banking sector needs to be taken into account.

               (17)The Austrian health system has so far dealt successfully with the COVID-19 pandemic. Expanding primary and ambulatory care services with a focus on health promotion and disease prevention would help to further improve population health. While maintaining high quality standards, cost efficiency could be increased by more effective public procurement and generic medicines. Also, Austria’s long-term care system faces structural and fiscal challenges, which have so far not been thoroughly addressed. The system delivers comparatively high-quality services, but faces staffing challenges, which become even more perceptible and evident in the current crisis. The long-term care sector relies strongly on care provided by workers from other Member States, pointing to the need to secure free flow of cross-border workers. In addition, adequate remuneration could help to make the job of nursing staff more attractive.

               (18)Tax policy is playing an important role in supporting households and businesses during containment and will be key in fostering economic recovery in the aftermath of the crisis. Austria’s tax mix is characterised by a high burden on labour, while the revenue potential of wealth-related and environmental taxes remains largely untapped and consumption taxes could be made more efficient. Tax reforms could help to shift the tax mix towards sources that are less detrimental to inclusive and sustainable growth, and provide a solid basis for recovery. In particular, insufficiently used taxes on alcohol and tobacco, pollution and resource consumption imply unused steering effects and revenue potential. The uneven, but generally low level of energy taxation undermines its efficiency and effectiveness as a policy tool to incentivise environmentally beneficial consumption. In particular, consistent taxation of CO2 emissions would make climate-friendly energy sources more competitive and provide fiscal space for reducing more distortive taxes. Higher, CO2-related energy taxes would help to internalise the social costs of pollution, lead consumers to rely more on renewable sources and encourage investors to invest in climate-friendly technologies. Finally, greater use of wealth-related taxes could make the tax system fairer, especially in view of Austria’s persistently high wealth inequality. In particular, recurrent property and inheritance taxes have proven to be relatively growth-friendly and progressive and should not be overlooked when it comes to generating tax revenues to restore public finances.

               (19)While Austria performed well on the Social Scoreboard supporting the European Pillar of Social Rights, gaps in coverage may mean a lack of income protection for vulnerable groups during the COVID-19 crisis and may require additional measures. While youth unemployment rises, the unemployed, long-term unemployed, non-standard workers and foreign born people are particlarly at risk of poverty. Active labour market policies providing lifelong learning opportunities and upskilling will remain crucially important. Disadvantaged students, including learners with disabilities, suffer particularly in circumstances that require distance learning. While some 10% of pupils under 15 have no access to a virtual learning environment, the Austrain government, in response to the COVID-19 crisis, has taken mitigating measures by providing pupils at risk with computers. Already existing inequalities in educational attainment, linked to socio-economic and migrant backgrounds, risk however to be exacerbated. A recovery strategy that improves access to inclusive, good-quality early childhood education and care which have been shown to redress social disadvantages, would produce socioeconomic benefits in the medium and long term and provide opportunities for women to fully access the labour market. The overall employment rate of women was high before the crisis but almost half of them worked part-time (linked to short opening hours of schools and childcare facilities) causing a significant unadjusted gender pay gap.

               (20)The effectiveness of COVID-19 support measures in relieving hard-pressed firms, preserving business environments, and avoiding insolvencies depends on their swift and un-bureaucratic implementation by public authorities and intermediaries. Start-ups and scale-ups may need specific support, e.g. in the form of public institutions purchasing equity stakes and incentives for venture capital funds to invest more in these firms. This is to strengthen those companies that are vital for the recovery but also to avoid fire sales of strategically important European firms. As well as funding support, hard-pressed firms, in particular smaller ones, need a supportive business environment. Administrative burden and regulatory density impose costs that firms can now afford less than ever. Efforts to reduce unnecessary burdens and provide efficient digital public services are an effective way of providing businesses with immediate, tangible relief without burdening the taxpayer. The insolvency framework should be geared to prevention but also to speedy unwinding and allowing for a ‘second chance’. Dispute resolution networks, such as SOLVIT, help companies in times of disruption to the single market and need adequate resources.

               (21)To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. This investment will be most effective when focused on innovation, digitalisation and the green transition so as to increase productivity and ensure sustainable competitiveness. Austria’s research and development (R&D) intensity has been one of the highest in the Union but the country has lagged behind innovation leaders in terms of innovation outcomes. With many businesses’ research budgets now under pressure, it is even more important to translate Austria’s R&D efforts into excellent science and cutting-edge innovation, maintain public investment in basic research, and ensure equity funding for innovative scale-ups. Digitalisation remains essential for opening up the economy and preparing for the ‘new normal’ after the lockdown. The weak diffusion of digital technologies and business models among smaller companies represents a bottleneck for productivity growth. While Austrians’ digital skills are in general above the EU average, not enough students graduate in computing to fill all available positions. Higher levels of e-commerce, working from home and e-government (for example) will require more investment in infrastructure (including 5G and rural broadband), equipment and skills.

               (22)Austria’s transformation to a climate neutral economy will require sizeable private and public investment over a sustained period. Austria’s national energy and climate plan identifies significant challenges in reaching its 2030 target for greenhouse gas emissions not covered by the Union emissions trading system. Improving resource productivity is a key driver for future growth while minimising impacts on the environment. Reducing transport-related emissions is essential for meeting air quality standards and climate goals. Frontloading and pursuing new investments to support the green transition will help to create new green jobs and kick-start the economy as it emerges from crisis management mode. Investments in eco-innovation would trigger productivity growth while reducing Austria’s ecological footprint. The programming of the Just Transition Fund for the period 2021-2027 could help Austria to address some of the challenges posed by the transition to a climate neutral economy, in particular in the territories covered by Annex D to the country report. This would allow Austria to make the best use of that fund.

               (23)While the present recommendations focus on tackling the socio-economic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations adopted by the Council on 9 July 2019 also covered reforms that are essential to address medium- to long-term structural challenges. Those recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester annual cycle. That also applies to recommendations regarding investment-related economic policies. The latter recommendations should be taken into account for the strategic programming of cohesion policy funding post-2020, including for mitigating measures and exit strategies with regard to the current crisis.

               (24)The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. Member States have taken stock of progress regarding United Nations’ Sustainable Development Goals (SDGs) implementation in their 2020 National Reform Programmes. By ensuring the full implementation of the recommendations below, Austria will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

               (25)Close coordination between economies in the economic and monetary union is key to achieve a swift recovery from the economic impact of the COVID-19. Austria should, as a Member State whose currency is the euro – and taking into account political guidance by the Eurogroup – ensure its policies remain consistent with the euro area recommendations and coordinated with those of the other euro area Member States.

               (26)In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Austria’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Stability Programme and the 2020 National Reform Programme and the follow-up given to the recommendations addressed to Austria in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Austria, but also their compliance with Union rules and guidance, given the need to strengthen the Union’s overall economic governance by providing Union-level input into future national decisions.

               (27)In the light of that assessment, the Council has examined the 2020 Stability Programme and its opinion is reflected in particular in recommendation (1) below,

               HEREBY RECOMMENDS that Austria take action in 2020 and 2021 to:

               1.In line with the general escape clause, take all necessary measures to effectively address the pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Improve the resilience of the health system by strengthening public health and primary care.

               2.Ensure equal access to education and increased digital learning.

               3.Ensure an effective implemention of liquidity and support measures, in particular for small and medium-sized enterprises, and reduce administrative and regulatory burden. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on innovation, sustainable transport, clean and efficient production and use of energy.

               4.Make the tax mix more efficient and more supportive to inclusive and sustainable growth.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        SWD(2020) 519 final.

                     (3)

                        OJ C 301, 5.9.2019, p. 117.

                     (4)

                        COM(2020) 112 final.

                     (5)

                        COM(2020) 123 final.

                     (6)

                        Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5) and Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).


               EUROPEAN COMMISSION
            Brussels, 20.5.2020
            COM(2020) 521 final
            Recommendation for a
            COUNCIL RECOMMENDATION
            on the 2020 National Reform Programme of Poland and delivering a Council opinion on the 2020 Convergence Programme of Poland

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the 2020 National Reform Programme of Poland and delivering a Council opinion on the 2020 Convergence Programme of Poland

               THE COUNCIL OF THE EUROPEAN UNION,

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

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

               Having regard to the recommendation of the European Commission,

               Having regard to the resolutions of the European Parliament,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Employment Committee,

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

               Having regard to the opinion of the Social Protection Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 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. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it did not identify Poland as one of the Member States for which an in-depth review would be carried out.

               (2)The 2020 country report for Poland
                  2
                was published on 26 February 2020. It assessed Poland’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019
                  3
               , the follow-up given to the recommendations adopted in previous years and Poland's progress towards its national Europe 2020 targets.

               (3)On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs, their incomes and companies’ business. It has delivered a major economic shock that is already having serious repercussions in the European Union. On 13 March 2020, the Commission adopted a Communication
                  4
                calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

               (4)Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

               (5)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause of the Stability and Growth Pact
                  5
               . The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn. In its Communication, the Commission shared with the Council its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the current conditions permit activation of the clause. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

               (6)Continued action is required to limit and control the spread of the pandemic, strengthen the resilience of the national health systems, mitigate the socio-economic consequences through supportive measures for business and households and to ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to get back to a normal functioning of our societies and economies and to sustainable growth, integrating inter alia the green transition and the digital transformation, and drawing all lessons from the crisis.

               (7)The COVID-19 crisis has highlighted the flexibility that the single market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the single market from functioning normally must be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector, which include in particular improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies. They are key elements for developing broader crisis preparedness plans.

               (8)The Union legislator has already amended the relevant legislative frameworks
                  6
                to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash flow pressures, Member States can also benefit from a 100% co-financing rate from the Union budget in the 2020-2021 accounting year. Poland is encouraged to make full use of those possibilities to help the individuals and sectors most affected by the challenges.

               (9)The socio-economic consequences of the pandemic are likely to be unevenly distributed across regions due to different specialisation patterns. This entails a risk of widening territorial disparities within Poland. Combined with the risk of a temporary unravelling of the convergence process between Member States, the current situation calls for targeted policy responses.

               (10)On 29 April 2020, Poland submitted its 2020 National Reform Programme, and on 30 April 2020, its 2020 Convergence Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

               (11)Poland is currently in the preventive arm of the Stability and Growth Pact.

               (12)On 13 July 2018, the Council recommended Poland to ensure that the nominal growth rate of net primary government expenditure
                  7
                does not exceed 4,2% in 2019, corresponding to an annual structural adjustment of 0,6% of GDP. The Commission’s overall assessment confirms a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2019 as well as over 2018 and 2019 taken together. However, in light of the activation of the general escape clause, further steps under the significant deviation procedure for Poland are not warranted.

               (13)In its 2020 Convergence Programme, the government plans the headline balance to deteriorate from a deficit of 0,7 % of GDP in 2019 to a deficit of 8,4% of GDP in 2020. After decreasing to 46,0% of GDP in 2019, the general government debt-to-GDP ratio is expected to increase to 55,2% in 2020. The macroeconomic and fiscal outlook is affected by high uncertainty due to the COVID-19 pandemic.

               (14)In response to the COVID-19 pandemic, and as part of a coordinated Union approach, Poland has adopted budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Convergence Programme, those budgetary measures amount to 3,2% of GDP and include allowances for self-employed and employed on non-standard labour contracts, exempting companies from social contributions (they are to be paid by the State), and subsidies to wages for certain companies. In addition, Poland has announced measures that, while not having a direct budgetary impact, will contribute to support liquidity to businesses, such as loan guarantees for enterprises. The fiscal impact of the budgetary measures provided in the Convergence Programme differs mainly due the treatment of loans to companies. In line with the authorities’ announcements, the Commission forecast is based on the assumption that loans equivalent to around 2¾ percentage points of GDP will be converted into subsidies and thus recorded as expenditure in 2020.  Overall, the measures taken by Poland are in line with the guidelines set out in the Commission Communication on a coordinated economic response to the COVID-19 outbreak. The full implementation of those measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

               (15)Based on the Commission 2020 spring forecast under unchanged policies, Poland’s general government balance is forecast at -9,5% of GDP in 2020 and -3,8% in 2021. The general government debt ratio is projected to remain below 60% of GDP in 2020 and 2021.

               (16)On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty due to Poland’s planned breach of the 3% of GDP deficit threshold in 2020. Overall, the analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is not fulfilled.

               (17)The COVID-19 outbreak has pushed Poland into a new social and economic situation. For the first time in almost three decades, a recession is forecasted for 2020. According to the data provided by the government, the pandemic’s impact on the health of the population was comparatively low, including due to an early adoption of unprecedented measures such as strict quarantine and social distancing. So far, the most negative consequences have been observed in the services sector (including transport, retail and wholesale trade and leisure), as well as in manufacturing, as a result of interruptions in supply chains. To offset the economic impact of imposed restrictions, the government has launched a set of measures worth around 9% of Poland’s GDP (deficit increasing measures and liquidity measures combined), which includes Union financing. This is also supported by the liquidity provision measures of National Bank of Poland. The government’s support focuses on stabilising the economy in the short term through supporting employees’ incomes, providing financing for businesses facing drops in revenue, strengthening resilience and responsiveness of the health sector, and strengthening the financial system. It also includes an investment programme to support economic recovery in the medium term. Public demand for the policy response, including through exemptions from social security contributions, benefits for employees in companies that are suspending their activity and access to loans for micro-enterprises, is high. The COVID-19 pandemic is expected to contribute to the GDP decline by 4,3% in 2020, followed by a recovery of 4,1% in 2021.

               (18)The COVID-19 pandemic made it necessary to put in place unprecedented measures in the health system. Sizeable outlays such as purchasing health-related equipment and supplies, increasing hospital and laboratory capacity, as well as strengthening staffing capacity, were made. Allocation of additional resources is needed also to compensate for other health services and investment that were postponed or redirected. Prior to the COVID-19 outbreak, public expenditure in health system was 4,8% of GDP, below the EU average of 7% of GDP in 2018. This, together with suboptimal allocation of funds, hampers the operation of the health system and access to it. In 2018, the proportion of the Polish population reporting unmet needs for medical examinations amounted to 4,2%, substantially higher than the 2% at Union level. The number of practising doctors and nurses relative to the population is still among the lowest in the Union and the distribution of the healthcare workforce is uneven across the country. Public health, e-health and primary care, which are crucial to improve prevention and access, and to make the system resilient to future challenges, remain underdeveloped. The pandemic has impacted long-term care facilities where many of the residents are a high-risk group.

               (19)The COVID-19 pandemic will impact significantly the labour market, reversing the unemployment fall of recent years. The unemployment rate is set to revert from 3,3% in 2019 to around 7,5% in 2020, and slightly recover to 5,3% in 2021. This short-term impact risks becoming more structural over the medium term, especially for vulnerable groups. The temporary short-time work scheme could be an effective tool to preserve jobs, with sufficient incentives for its take-up by companies. At the same time, despite favourable developments prior to the COVID-19 crisis, the labour market participation of some groups, especially women, the low-skilled, older people and persons with disabilities and their carers, have remained low. Migration from non-EU countries has helped to mitigate the labour shortages, but continued inflow of migrant workers may be difficult to achieve due to border control restrictions. The enhancement of flexible working arrangements, including distance working and flexible time working schemes, notably under permanent types of employment, may therefore help responding to the crisis and also help support groups with lower activity rates finding permanent employment. This would also improve labour market resilience during future downturns.

               (20)To mitigate the social impacts of the COVID-19 pandemic, sustain social cohesion and support the economic recovery, substantial safety nets are required. In recent years, Poland launched an extensive programme of social transfers, including the universal child allowance and the additional one-off benefit to be paid every year to pensioners, worth nearly 2,5% of GDP per year. These measures are not means-tested and leave scope for better targeting. At the same time, coverage of social benefits is low for people with lowest-incomes. The biggest increase in extreme poverty reported in 2019 by the household budget survey was observed for people or families living on allowances (other than pensions and disability pensions), signalling the weaknesses in the social security system. Moreover, not all types of labour contracts provide an access to social protection, such as adequate unemployment benefits, maternity benefits, sickness and invalidity benefits. This makes some workers affected by the emergency measures more vulnerable and puts them at risk of falling into poverty. Additionally, the level of minimum income benefits is below the Union average.

               (21)The sudden suspension of classes at all educational levels has posed challenges for the education system in providing distance learning. To prevent growing inequalities, it is crucial to ensure that all learners, in particular from disadvantaged backgrounds, can access distance learning. However, households of almost 330,000 pupils were not equipped with a computer with internet access in 2018. Significant proportion of teachers lack skills to provide digital learning. At the same time, many parents struggle in supporting digital learning and home-based schooling. Continuation of measures to equip schools and teachers with digital infrastructure and on line teaching materials would address some of these issues and ensure quality. The COVID-19 crisis brings out the overall structural challenge with digital skills attainment, as nearly half of the adult population lacks basic digital skills, and overall adults’ participation in learning is significantly lower than the Union average. The recent reforms in vocational education have not incentivised enough employers’ to participate in it and work-based training remains underutilised. Emerging teacher shortages indicate the need to increase the attractiveness of the teaching profession.

               (22)The COVID-19 outbreak has severely impacted working conditions of businesses, especially small and medium-sized enterprises (SMEs) and micro-enterprises. Offering distance working arrangements represents a challenge, and only a tenth of Polish enterprises are digitalised enough to allow for quick adaptation to new conditions. One of the main obstacles to the digitalisation of the SMEs are the low levels of digital literacy among owners, managers and employees. The use of digital technologies in public administration is key to ensure the provision of the governmental services as well as to steer the measures needed to monitor and manage the crisis. In addition, efficient digital public services lead to reduction of unnecessary regulatory and administrative burden, which can be crucial in the recovery phase.

               (23)To mitigate the impact of the crisis, the Polish government offer substantial liquidity support through guarantees, loans and conditional grants to affected companies, with a focus on the SMEs and micro-enterprises. The government measures are supported by the National Bank of Poland, including by the treasury bonds purchase programme in the secondary market and considerable interest rate cuts. Effective and swift implementation of these measures and their effective transmission by intermediaries is essential to help the business sector to pursue their activity and facilitate recovery. In the process of designing and implementing these measures, the resilience of the banking sector needs to be taken into account and the stability of the financial system needs to be monitored. Possibility to defer payments of taxes and social contributions and speeding up of contractual payments by public authorities also helps to improve the cash-flow of affected companies.

               (24)To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Polish economy is carbon intensive and air quality stands among the lowest in the Union, posing major environmental and health concerns. Planning and adopting ambitious measures aimed at clean energy transition in a timely manner in accordance with the European Green Deal and the National Energy and Climate Plan is thus essential. While fibre deployment in Poland is above the EU average and significant progress has been made in ultrafast and mobile broadband take-up in previous years, Poland is still far from its committed connectivity targets. The recovery could be further supported by significant investment in sustainable transport infrastructure to improve connectivity between peripheral areas and centres of economic activity. Poland will increasingly rely on science and innovation to ensure long-term sustainable economic growth and competitiveness. General spending on research and development in relation to GDP remains below the EU average and, despite visible progress in many components of the policy mix of the country’s innovation ecosystem, the science-business cooperation remains a key obstacle on Poland’s way to strengthen innovation. The programming of the Just Transition Fund for the period 2021-2027 could help Poland to address some of the challenges posed by the transition to a climate neutral economy, in particular in the territories covered by Annex D to the country report
                  8
               . This would allow Poland to make the best use of that fund.

               (25)A stable and predictable business environment and friendly investment climate play an important role in a post-pandemic economic recovery. The independence, efficiency and quality of the justice system are essential components in this respect. Legal certainty, including access to independent courts, and trust in the quality and predictability of regulatory policies and institutions are also crucial factors for the operation of the single market and for safeguarding Poland’s position in European supply chains in a post-pandemic situation. In addition to longstanding concerns over the rule of law in Poland raised by the Commission, a number of which were already addressed in rulings of the Court of Justice of the European Union, recent developments raise further concerns, putting at risk the functioning of the Polish and the Union’s legal order.

               (26)Sound and stable regulatory environment is the basis for sustaining economic growth and private investment. The lack of proper public and social partners’ consultations has detrimental effect on the stability and robustness of the business environment, as well as on the quality of legislation. Public consultations were made obligatory for the draft laws proposed by the Council of Ministers, however, they are either not delivered or not obligatory for the proposals that are using alternative tracks, such as submission by the Members of Parliament. This inconsistency is further weighting on the quality of the resulting legislation. In addition, the quality of the social dialogue has deteriorated in the past years, in particular due to no or very short consultations in the policy-making process. Ensuring sufficient time for consultations, improving the uptake of stakeholders' opinions on laws and policy documents and minimising the number of laws exempted from consultations would strengthen the involvement of social partners and help to improve the quality of law-making. The Social Dialogue Council constitutes an institutional framework for tripartite social dialogue. However, legal provisions adopted in April 2020 weaken the autonomy of the social partners in the Social Dialogue Council and risk further deteriorating the effectiveness of social dialogue in the country.

               (27)While the present recommendations focus on tackling the socio-economic impacts of the pandemic and facilitating the economic recovery, the 2019 country-specific recommendations adopted by the Council on 9 July 2019 also covered reforms that are essential to address medium- to long-term structural challenges. Those recommendations remain pertinent and will continue to be monitored throughout next year’s European Semester annual cycle. That also applies to recommendations regarding investment-related economic policies. The latter recommendations should be taken into account for the strategic programming of cohesion policy funding post-2020, including for mitigating measures and exit strategies with regard to the current crisis.

               (28)The European Semester provides the framework for continuous economic and employment policy coordination in the Union, which can contribute to a sustainable economy. Member States have taken stock of progress regarding United Nations’ Sustainable Development Goals (SDGs) implementation in their 2020 National Reform Programmes. By ensuring the full implementation of the recommendations below, Poland will contribute to the progress towards the SDGs and to the common effort of ensuring competitive sustainability in the Union.

               (29)In the context of the 2020 European Semester, the Commission has carried out a comprehensive analysis of Poland’s economic policy and published it in the 2020 country report. It has also assessed the 2020 Convergence Programme and the 2020 National Reform Programme and the follow-up given to the recommendations addressed to Poland in previous years. It has taken into account not only their relevance for sustainable fiscal and socioeconomic policy in Poland, but also their compliance 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.

               (30)In the light of that assessment, the Council has examined the 2020 Convergence Programme and its opinion
                  9
                is reflected in particular in recommendation (1) below,

               HEREBY RECOMMENDS that Poland take action in 2020 and 2021 to:

               1.In line with the general escape clause, take all necessary measures to effectively address the pandemic, sustain the economy and support the ensuing recovery. When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. Improve resilience, accessibility and effectiveness of the health system, including by providing sufficient resources and accelerating the deployment of e-health services.

               2.Mitigate the employment impact of the crisis notably by enhancing flexible and short-time working arrangements. Better target social benefits and ensure access to those in need. Improve digital skills. Further promote the digital transformation of companies and public administration.

               3.Continue efforts to secure access to finance and liquidity for companies. Front-load mature public investment projects and promote private investment to foster the economic recovery. Focus investment on the green and digital transition, in particular on digital infrastructure, clean and efficient production and use of energy, and sustainable transport, contributing to a progressive decarbonisation of the economy, including in the coal regions.

               4.Enhance the investment climate, in particular by safeguarding judicial independence. Ensure effective public consultations and involvement of social partners in the policy-making process.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        SWD(2020) 520  final.

                     (3)

                        OJ C 301, 5.9.2019, p. 117.

                     (4)

                        COM(2020) 112 final.

                     (5)

                        COM(2020) 123 final.

                     (6)

                        Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending Regulations (EU) No 1301/2013, (EU) No 1303/2013 and (EU) No 508/2014 as regards specific measures to mobilise investments in the healthcare systems of Member States and in other sectors of their economies in response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5) and Regulation (EU) 2020/558 of the European Parliament and of the Council of 23 April 2020 amending Regulations (EU) No 1301/2013 and (EU) No 1303/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (OJ L 130, 24.4.2020, p. 1).

                     (7)

                        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.

                     (8)

                        SWD(2020) 520 final.

                     (9)

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