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

text:
               10.9.2018

               EN

               Official Journal of the European Union

               C 320/92

      COUNCIL RECOMMENDATION
      of 13 July 2018
      on the 2018 National Reform Programme of Portugal and delivering a Council opinion on the 2018 Stability Programme of Portugal
      (2018/C 320/21)
      THE COUNCIL OF THE EUROPEAN UNION,
      Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
      Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 5(2) thereof,
      Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (2), and in particular Article 6(1) thereof,
      Having regard to the recommendation of the European Commission,
      Having regard to the resolutions of the European Parliament,
      Having regard to the conclusions of the European Council,
      Having regard to the opinion of the Employment Committee,
      Having regard to the opinion of the Economic and Financial Committee,
      Having regard to the opinion of the Social Protection Committee,
      Having regard to the opinion of the Economic Policy Committee,
      Whereas:

                  (1)

                  On 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified Portugal as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was endorsed by the European Council on 22 March 2018. On 14 May 2018, the Council adopted the Recommendation on the economic policy of the euro area (3) (‘Recommendation for the euro area’).

                  (2)

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

                  (3)

                  The 2018 country report for Portugal was published on 7 March 2018. It assessed Portugal's progress in addressing the country-specific recommendations adopted by the Council on 11 July 2017 (4), the follow-up given to the country-specific recommendations adopted in previous years and Portugal's progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 7 March 2018. The Commission's analysis led it to conclude that Portugal is experiencing macroeconomic imbalances. In particular, the large stocks of net external liabilities, private and public debt, and a high proportion of non-performing loans constitute vulnerabilities in a context of low productivity growth. A prudent current account position and the maintenance of competitiveness gains are required to ensure the adjustment of net external liabilities. Private debt ratios continue to decline from high levels due to resumed nominal growth and slightly negative credit flows, and the government debt-to-GDP ratio is projected to have entered a downward trend, in a context of persistent deleveraging needs. Financial sector interventions helped to reduce stability risks, although banks remain penalised by low profitability and a large (albeit declining) stock of non-performing loans. Higher productivity growth is key for improved prospects as regards competitiveness, deleveraging and potential growth. Unemployment has been falling fast for several years. Policy gaps remain, in particular in terms of implementing planned measures to reduce the number of non-performing loans and improve the business environment. The adoption and implementation of several reform plans, including measures to tackle labour market segmentation and fiscal-structural reforms to improve the sustainability of public finances, will need to be monitored.

                  (4)

                  On 27 April 2018, Portugal submitted its 2018 National Reform Programme and its 2018 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time. The 2018 Stability Programme projects a solid downward path of the public debt-to-GDP ratio. Portugal's 2018 National Reform Programme includes commitments both for the short and medium term and covers the challenges identified in the 2018 country report. In particular, it announces measures in the areas of qualifications and innovation, which can boost productivity and increase the value of Portuguese exports. The strategy presented to reduce non-performing loans together with the action to promote firm capitalisation contribute to reduce the indebtedness of the Portuguese economy and clean up banks' balance sheets. Overall, the effective implementation of the submitted programmes would underpin the correction of imbalances.

                  (5)

                  Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds (‘ESI Funds’) for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (5), where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of that provision in guidelines on the application of the measures linking the effectiveness of the ESI Funds to sound economic governance.

                  (6)

                  Portugal is currently in the preventive arm of the Stability and Growth Pact and subject to the transitional debt rule. In its 2018 Stability Programme, Portugal plans to attain a headline deficit of 0,7 % of GDP and 0,2 % of GDP in 2018 and 2019, respectively, and a further improvement to a surplus of 1,4 % of GDP by 2021. Those plans do not include the potential deficit-increasing impact of bank support measures from 2019 onwards. It is planned that the medium-term budgetary objective — a structural surplus of 0,25 % of GDP — is to be achieved by 2020. The 2018 Stability Programme projects the general government debt-to-GDP ratio to reach 122,2 % in 2018 and 118,4 % in 2019, which would then be at 107,3 % in 2021. The macroeconomic scenario underpinning those budgetary projections is plausible for 2018 but favourable for the following years. At the same time, the measures needed to support the planned deficit targets from 2018 onwards have not been sufficiently specified.

                  (7)

                  Portugal's 2018 Stability Programme indicates that the budgetary impact of the large-scale wildfires that occurred in 2017 was significant and provides adequate evidence of the scope and nature of these additional budgetary costs. In particular, the 2018 Stability Programme indicates that the 2018 budget comprises exceptional expenditure amounting to about 0,07 % of GDP in relation to preventive measures to protect the national territory against wildfires. The 2018 Stability Programme sets out expenditure related to the emergency management, classified as one-off measures, and to prevention. Due to the integrated nature of these expenditures and due to the direct link with the large-scale wildfires of 2017, the specific treatment of wildfire-prevention expenditure could be considered in application of the ‘unusual event clause’. According to the Commission, the eligible additional expenditure in 2018 amounts to 0,07 % of GDP for preventive measures. The provisions set out in Articles 5(1) and 6(3) of Regulation (EC) No 1466/97 cater for this additional expenditure, in that the unprecedented large-scale wildfires are considered unusual events, their impact on Portugal's public finances is significant and sustainability would not be compromised by allowing for a temporary deviation from the adjustment path towards the medium-term budgetary objective. A final assessment, including on eligible amounts, will be made in spring 2019 on the basis of observed data for 2018 as provided by the Portuguese authorities.

                  (8)

                  On 11 July 2017, the Council recommended Portugal to ensure that the nominal growth rate of net primary government expenditure (6) does not exceed 0,1 % in 2018, corresponding to an annual structural adjustment of at least 0,6 % of GDP. At the same time, it was stated that the assessment of the 2018 Draft Budgetary Plan and subsequent assessment of 2018 budget outcomes will need to take due account of the goal of achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of public finances. Following the Commission's assessment of the strength of the recovery in Portugal while giving due consideration to its sustainability challenges, carried out in the context of its opinion on Portugal's 2018 Draft Budgetary Plan, no additional elements in that regard need to be taken into account. Based on the Commission 2018 spring forecast, there is a risk of a significant deviation from that recommended adjustment in 2018 and over 2017 and 2018 taken together.

                  (9)

                  In 2019, in view of Portugal's general government debt ratio above 60 % of GDP and projected output gap of 1,3 % of GDP, the nominal growth rate of net primary government expenditure should not exceed 0,7 %, in line with the structural adjustment of 0,6 % of GDP stemming from the commonly agreed adjustment matrix of requirements under the Stability and Growth Pact. Under unchanged policies, there is a risk of a significant deviation from that requirement in 2019 and over 2018 and 2019 taken together. At the same time, Portugal is forecast to comply with the transitional debt rule in 2018 and 2019. Overall, the Council is of the opinion that the necessary measures should be taken as of 2018 to comply with the provisions of the Stability and Growth Pact. The use of any windfall gains to further reduce the general government debt ratio would be prudent.

                  (10)

                  Ensuring public debt sustainability hinges on sustainable fiscal consolidation via a structural improvement in public finances, to be achieved through stronger revenue collection and expenditure controls. To enhance expenditure controls, effective enforcement of the commitment control law, strict and timely implementation of the budget framework law and continued spending review and rationalisation efforts are key. Budgetary planning and implementation continue to be a considerable challenge particularly in the health sector, where late payments (arrears) remain very high, which also points to weaknesses in accounting control and managerial practices. For sustainable fiscal consolidation, high and rising ageing costs should be addressed. In the medium term, higher ageing-related fiscal risks are expected to relate largely to the costs of financing pensions, while health-related costs will increase pressure in the long term. Steps to improve the medium-term sustainability of the pension system, together with a comprehensive strategy to tackle the health-related costs of ageing, would help to address those risks.

                  (11)

                  In a similar vein, controlling expenditure, managing debt and improving the overall financial sustainability of state-owned enterprises could contribute significantly to the structural improvement of public finances. Although overall net income continues to be negative, the operational results of state-owned enterprises have generally improved in recent years, except in the health sector, where they have worsened. Total non-consolidated debt of public corporations included in general government also remains high, at 18,3 % of GDP at the end of 2017. Measures to improve the monitoring of state-owned enterprises are being rolled out, but their impact remains to be seen. An ongoing debt management and recapitalisation plan for state-owned enterprises should reduce indebtedness and lower interest costs, but good incentives could be reinforced by ensuring a predictable and transparent framework for limited budgetary transfers.

                  (12)

                  The recovery of the Portuguese labour market continues, in line with strengthened economic performance. The economy added more than 150 000 jobs in 2017 and the employment rate (20-64 year olds) increased up to 73,4 % in 2017, back to pre-crisis levels. The unemployment rate dropped considerably and is now below the euro area average. The long-term unemployment rate has also fallen rapidly, although it remains relatively high. Besides ongoing active labour market policies, exemptions on social security and a public employment service model of personalised support for job seekers, Portugal is also implementing one-stop shops for employment in 2018. This could play a major role in ensuring wider coverage of activation measures. Poverty and inequality indicators have also improved further. The ‘at-risk-of-poverty or social exclusion’ rate is coming closer to the Union average and the income share of the poorest 20 % has increased since 2015. However, the level of income inequality is still high. Moreover, the effectiveness of social transfers (excluding pensions) in lifting people out of poverty is low, the adequacy of the minimum income scheme (though improved) remains limited and housing affordability is an increasing challenge for low-income households.

                  (13)

                  Despite a significant increase in the number of permanent jobs in 2017, the proportion of temporary employees remained stable at 22 %, still one of the highest levels in the Union. In 2017, around 82 % of temporary employees were in this situation involuntarily. While more people are moving from temporary to permanent jobs, temporary contracts remain the norm for unemployed people finding a job. Moreover, the (already wide) wage gap between temporary and permanent employees grew during the crisis. Measures to promote the creation of permanent jobs (e.g. Contrato-Emprego) and exemptions from social contributions in return for recruiting people belonging to vulnerable groups proved effective but had limited coverage. Some aspects of employment protection legislation and cumbersome court procedures may still discourage recruitment on open-ended contracts. However, no action is currently planned to review the legal framework for dismissals. The Government is planning measures to address labour market segmentation through tripartite discussion with social partners.

                  (14)

                  The overall skills level of the adult population remains among the lowest in the Union, hampering the country's innovation potential and competitiveness. This includes digital skills: in 2017, only 50 % of citizens aged 16-74 possessed basic or above basic digital skills (against a Union average of 57 %). Programmes are being rolled out in this regard (in particular Qualifica and the national digital competences initiative Incode 2030), but their effectiveness in upgrading workers' basic (numeracy, literacy and digital) skills and ultimately raising productivity will depend on the coverage and quality of the training offered, going beyond the recognition of skills. While evidence suggests that recent minimum wage increases (amounting to a cumulative rise of 18,3 % since 2014) have not harmed the employment rate among low-skilled workers, the substantial rise in the number of employees covered, up to 20,4 % in the third quarter of 2017, resulted in increasing wage compression. This threatens to reduce the skills wage premium, in particular between low- and medium-skilled workers, thus lowering incentives for the low-skilled to invest in education and training. The Government is closely monitoring minimum wage developments together with social partners.

                  (15)

                  Early school leaving remains higher than the Union average, but it is on a long-term downward trend, partly thanks to measures being implemented to encourage educational success and reduce drop-out rates. Educational outcomes continue to improve, but there are equity concerns as proportions of low achievers differ significantly between the bottom and the top socio-economic quartiles. Attainment in tertiary education (age 30-34) decreased from 34,6 % in 2016 to 33,9 % in 2017, far below the national target of 40 % by 2020. Despite the high employability of science, engineering, technology, and mathematics graduates, there is low student uptake in these fields.

                  (16)

                  Despite the positive developments in the Portuguese Research & Innovation system in the last years, in particular in terms of quantity and quality of human resources and scientific production, overall significant bottlenecks remain in creating a culture and the enabling conditions for stronger academia-business cooperation. These include barriers to knowledge and technology transfer, commercialisation of research outputs as well as research career tracks that do not sufficiently incentivise researchers to explore the avenues of ‘entrepreneurial research’ and the opportunities for collaboration with industry. Further raising the awareness and clarity of intellectual property in the relation between academia and business could contribute to reduce the time of execution of contractual objectives, the economic monetisation of scientific knowledge as well as their economic potential.

                  (17)

                  A comprehensive strategy for a faster reduction of non-performing assets is being implemented. This has helped to reduce the ratio of non-performing loans from 17,2 % of gross loans at the end of 2016 to 13,3 % in the fourth quarter of 2017. Corporate non-performing loans are a particular concern, as they account for about two-thirds of the total stock of non-performing loans; the ratio of corporate non-performing loans remains high, at 25,2 % of gross loans. Resolving bad assets is key to freeing up credit supply for new investments and sustainable growth. However, procedures for insolvent firms and thin secondary markets for bad assets remain significant impediments to reducing the ratio of non-performing loans. Although capital increases, together with the ongoing efforts to reduce costs, and some more recent positive developments regarding non-performing loans, are improving financial sector prospects, profitability remains low, exposure to sovereign debt high and capital buffers weak.

                  (18)

                  Access to finance remains a major challenge for the Portuguese economy. Obtaining stable access to finance, and in particular to equity capital, is considered to be one of the major challenges for Portuguese enterprises, further exacerbated by the deleveraging pressures. In relative terms, alternative sources of finances remain of little relevance. In recent years, new programmes and credit lines have been launched, along with further simplifications in the business environment, but there is still room for improvement. At the same time, though decreasing, non-performing loans and corporate debt remain high and improvements in the allocation of capital towards more productive firms would be beneficial for the investment environment.

                  (19)

                  Despite progress in introducing administrative simplification for cross-cutting matters impacting the daily lives of citizens and businesses, sector-specific regulatory and administrative barriers still impede investment and an efficient allocation of resources. A revamp of procedural workflows by shortening deadlines for decision-making, derogating from the tacit-approval principle in very limited cases only and replacing authorisation schemes requiring the submission of multiple documents by ‘responsible declarations’ are much needed sector-specific reforms in this regard. Administrative charges in the construction sector should be brought into proportion with actual costs. While competition in public procurement remains limited, the revised Public Procurement Code aims to promote transparency, competition and better management of public contracts. The implementation of the new rules should be monitored, including the impact of the stricter rules on the use of direct awards. Even though the Portuguese justice system continues to improve its efficiency, the length of proceedings in administrative courts remains a challenge. Moreover, corruption and lack of transparency are still perceived by businesses as areas of concern. While progress has continued as regards prosecuting corruption, efforts to improve the culture of integrity in public institutions have not so far shown sufficient results.

                  (20)

                  Regulatory reforms have been scarce since the financial assistance programme, halting or at times even reversing reforms agreed in that context. Corporate groups are banned from providing several professional services. By-laws regulating certain professional business services, in particular legal services, are less ambitious than the framework law in decisive respects, such as legal form, shareholding, management, advertising and multidisciplinary practices. A reform of the authorisation and registration of construction service providers has been scarcely complemented by an easing of controls for installation services and building controls.

                  (21)

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

                  (22)

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

                  (23)

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

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

                  1.

                  Ensure that the nominal growth rate of net primary government expenditure does not exceed 0,7 % in 2019, corresponding to an annual structural adjustment of 0,6 % of GDP. Use windfall gains to accelerate the reduction of the general government debt ratio. Strengthen expenditure control, cost effectiveness and adequate budgeting, in particular in the health sector with a focus on the reduction of arrears in hospitals. Improve the financial sustainability of state-owned enterprises, in particular by increasing their overall net income and by reducing debt.

                  2.

                  Promote an environment conducive to hiring on open-ended contracts, including by reviewing the legal framework in consultation with social partners. Increase the skills level of the adult population, including digital literacy, by strengthening and broadening the coverage of the training component in adult qualification programmes. Improve higher education uptake, namely in science and technology fields.

                  3.

                  Increase the efficiency of insolvency and recovery proceedings and reduce impediments to the secondary market for non-performing loans. Improve access to finance for businesses. Reduce the administrative burden by shortening procedural deadlines, using more tacit approval and reducing document submission requirements. Remove persistent regulatory restrictions by ensuring a proper implementation of the framework law for highly regulated professions. Increase the efficiency of administrative courts, inter alia by decreasing the length of proceedings.

         Done at Brussels, 13 July 2018.

               For the Council

               The President

            H. LÖGER

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

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

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

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

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

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

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


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

text:
               10.9.2018

               EN

               Official Journal of the European Union

               C 320/80

      COUNCIL RECOMMENDATION
      of 13 July 2018
      on the 2018 National Reform Programme of the Netherlands and delivering a Council opinion on the 2018 Stability Programme of the Netherlands
      (2018/C 320/18)
      THE COUNCIL OF THE EUROPEAN UNION,
      Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
      Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 5(2) thereof,
      Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (2), and in particular Article 6(1) thereof,
      Having regard to the recommendation of the European Commission,
      Having regard to the resolutions of the European Parliament,
      Having regard to the conclusions of the European Council,
      Having regard to the opinion of the Employment Committee,
      Having regard to the opinion of the Economic and Financial Committee,
      Having regard to the opinion of the Social Protection Committee,
      Having regard to the opinion of the Economic Policy Committee,
      Whereas:

                  (1)

                  On 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified the Netherlands as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was endorsed by the European Council on 22 March 2018. On 14 May 2018, the Council adopted the Recommendation on the economic policy of the euro area (3) (‘Recommendation for the euro area’).

                  (2)

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

                  (3)

                  The 2018 country report for the Netherlands was published on 7 March 2018. It assessed some progress in addressing the country-specific recommendations adopted by the Council on 11 July 2017 (4), the follow-up given to the country-specific recommendations adopted in previous years and the Netherlands' progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 7 March 2018. The Commission's analysis led it to conclude that the Netherlands is experiencing macroeconomic imbalances. In particular, the Netherlands shows the largest three-year average current account surplus in terms of GDP among euro area Member States. The surplus suggests a suboptimal allocation of resources, leaving opportunities for increased growth and welfare. Private debt is high, specifically the stock of household mortgages and multinational enterprises' debt. The long household balance sheets increase the vulnerability to financial shocks.

                  (4)

                  The Netherlands submitted its 2018 National Reform Programme on 30 April 2018 and its 2018 Stability Programme on 26 April 2018. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

                  (5)

                  Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds (‘ESI Funds’) for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (5), where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of that provision in guidelines on the application of the measures linking the effectiveness of the ESI Funds to sound economic governance.

                  (6)

                  The Netherlands is currently in the preventive arm of the Stability and Growth Pact. In its 2018 Stability Programme, the Government plans a decrease in the general government surplus from 1,1 % of GDP in 2017 to 0,3 % of GDP in 2021. The medium-term budgetary objective — a structural deficit of 0,5 % of GDP — continues to be met throughout the programme period. According to the 2018 Stability Programme, the government debt-to-GDP ratio is projected to fall to 44,0 % of GDP in 2021. The macroeconomic scenario underpinning those budgetary projections is plausible. Based on the Commission 2018 spring forecast, the structural balance is projected to decline from a surplus of 0,5 % of GDP in 2017 to a deficit of 0,1 % of GDP in 2018 and 0,3 % of GDP in 2019, above the medium-term budgetary objective. General government debt is forecast to remain on a firm downward path and below the Treaty reference value. Overall, the Council is of the opinion that the Netherlands is projected to comply with the provisions of the Stability and Growth Pact in 2018 and 2019. At the same time, while respecting the medium-term objective, there remains scope to use fiscal and structural policies to raise public and private investment in research, development and innovation.

                  (7)

                  The Netherlands has an efficient research and development sector and the country's high-performing education system and scientific base provide a sound basis for boosting innovation and growth capacity through education and research and development activities. Substantial additional investment has been announced which could help to stabilise public and private research and development intensity. Whether the Netherlands will reach its Europe 2020 targets, in particular on investment in research and development and renewable energy, remains uncertain.

                  (8)

                  A key challenge in addressing high household indebtedness lies in the housing market, where the rigidities and distortive incentives that have built up over decades shape the patterns of housing financing and sectoral savings. Since 2012, a series of measures has been implemented that partly address this. In 2017, the Government announced plans to accelerate the reduction in mortgage interest tax deductibility starting in 2020. Yet, the lack of a well-functioning middle segment on the rental market encourages households to buy rather than rent, leading to high debt-to-income ratios and financial vulnerability at a young age. The social housing sector is one of the largest in the Union, but housing is not always occupied by those really in need. High-income households stay in social housing, given that social housing corporations do not increase rents as fast as they legally could. While the Government has announced its intention to support the supply of affordable housing on the private rental market, concrete plans for such support have not been communicated yet.

                  (9)

                  As indicated in the Recommendation for the euro area, the fight against aggressive tax planning strategies is essential to impede distortions of competition between firms, provide fair treatment of taxpayers and safeguard public finances. Spill-over effects of taxpayers' aggressive planning strategies between Member States call for a coordinated action of national policies to complement Union legislation. The high level of dividend, royalty and interest payments made via the Netherlands suggests that the country's tax rules are used by companies that engage in aggressive tax planning. A large proportion of the foreign direct investment stock is held by ‘special purpose entities’. The absence of withholding taxes on outbound (i.e. from Union residents to third-country residents) royalties and interest payments may lead to those payments escaping tax altogether, if they are also not subject to tax in the recipient jurisdiction. The lack of some anti-abuse rules, especially in the case of hybrid entities, may also facilitate aggressive tax planning. The Commission acknowledges the Netherlands' commitment to fight aggressive tax planning as set out in the reform agenda on taxation, including withholding taxes on royalty, interest and dividend payments in case of abuse or payments to low-tax jurisdictions, is a positive step to decrease aggressive tax planning and should be implemented swiftly and monitored closely. Based on recent exchanges with the Dutch authorities, the Commission will continue its constructive dialogue to fight against taxpayers aggressive planning strategies.

                  (10)

                  Despite low unemployment and high job vacancy rates, nominal wage growth was moderate at 1,5 % in 2017. This is below the level that could be expected based on inflation, productivity and unemployment. Moderate wage growth can be partly linked to slow increases in productivity, remaining labour market slack and increased labour market segmentation. In 2017, the Government adopted several fiscal measures, which reduce the tax burden on labour and aim at increasing the net disposable household income of those who work. Further boosting net disposable household income by creating the conditions to promote wage growth and reforming the second pillar of the pension system to make it more transparent, inter-generationally fairer and more resilient to shocks would support domestic demand and contribute to euro area rebalancing.

                  (11)

                  The recent growth in employment can be largely attributed to an increase in the number of people employed on temporary contracts and of the self-employed. The high and increasing percentage of temporary contracts as well as the rapid increase in self-employment without employees is observed in the context of great differences in applicable labour regulations, labour protection, as well as differences in tax and social security legislation. Although some measures have been taken and additional ones have recently been announced, some of these factors still create financial incentives for employees to start working as self-employed or favour hiring them under a temporary contract. In addition, the enforcement of measures to tackle bogus self-employment has been suspended until 2020. Self-employed are more often under-insured against disability, unemployment and old age. This could affect the sustainability of the social security system in the long run.

                  (12)

                  Despite a labour market that performs well overall, there is still untapped labour potential. In particular the high number of part-time working women and the employment situation of people with a migrant background remain an important challenge. The employment rate for non-EU-born migrants is 20,6 percentage points lower than for people born in the Netherlands with an even larger gap for non-EU-born women.

                  (13)

                  The rise in recent years in the household saving rate was partly due to higher saving in the second pillar of the pension system (mandatory supplementary private schemes), to which the regulatory environment contributed. An appropriate intra- and inter-generational distribution of costs and risks beyond the adopted rules on indexation and financial buffers (financial assessment framework) would help households to allocate their financial means in more growth-friendly ways. The Government has confirmed its intention to substantially reform the second pension pillar in order to improve the coverage and to create a more transparent, more flexible and actuarially fairer system. With respect to fiscal sustainability, the 2018 Ageing Report points to a medium risk to fiscal sustainability in the long term, as long-term care expenditures are projected to increase from 3,5 % to 6,0 % of GDP by 2070.

                  (14)

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

                  (15)

                  In the light of this assessment, the Council has examined the 2018 Stability Programme and is of the opinion (6) that the Netherlands is expected to comply with the Stability and Growth Pact.

                  (16)

                  In the light of the Commission's in-depth review and this assessment, the Council has examined the 2018 National Reform Programme and the 2018 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1) and (2) below,

            HEREBY RECOMMENDS that the Netherlands take action in 2018 and 2019 to:

                  1.

                  While respecting the medium-term objective, use fiscal and structural policies to raise public and private investment in research, development and innovation. Take measures to reduce the debt bias for households and the remaining distortions in the housing market, in particular by supporting the development of the private rental sector.

                  2.

                  Reduce the incentives to use temporary contracts and self-employed without employees, while promoting adequate social protection for the self-employed, and tackle bogus self-employment. Create conditions to promote higher wage growth, respecting the role of the social partners. Ensure that the second pillar of the pension system is more transparent, inter-generationally fairer and more resilient to shocks.

         Done at Brussels, 13 July 2018.

               For the Council

               The President

            H. LÖGER

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

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

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

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

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

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


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

text:
               10.9.2018

               EN

               Official Journal of the European Union

               C 320/1

      COUNCIL RECOMMENDATION
      of 13 July 2018
      on the 2018 National Reform Programme of Belgium and delivering a Council opinion on the 2018 Stability Programme of Belgium
      (2018/C 320/01)
      THE COUNCIL OF THE EUROPEAN UNION,
      Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
      Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 5(2) thereof,
      Having regard to the recommendation of the European Commission,
      Having regard to the resolutions of the European Parliament,
      Having regard to the conclusions of the European Council,
      Having regard to the opinion of the Employment Committee,
      Having regard to the opinion of the Economic and Financial Committee,
      Having regard to the opinion of the Social Protection Committee,
      Having regard to the opinion of the Economic Policy Committee,
      Whereas:

                  (1)

                  On 22 November 2017, the Commission adopted the Annual Growth Survey, marking the start of the 2018 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The priorities of the Annual Growth Survey were endorsed by the European Council on 22 March 2018. On 22 November 2017, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (2), the Commission also adopted the Alert Mechanism Report, in which it did not identify Belgium as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was endorsed by the European Council on 22 March 2018. On 14 May 2018, the Council adopted the Recommendation on the economic policy of the euro area (3) (‘Recommendation for the euro area’).

                  (2)

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

                  (3)

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

                  (4)

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

                  (5)

                  Relevant country-specific recommendations have been addressed in the programming of the European Structural and Investment Funds (‘ESI Funds’) for the 2014-2020 period. As provided for in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (5), where it is necessary to support the implementation of relevant Council recommendations, the Commission may request a Member State to review and propose amendments to its Partnership Agreement and relevant programmes. The Commission has provided further details on how it would make use of that provision in guidelines on the application of the measures linking the effectiveness of the ESI Funds to sound economic governance.

                  (6)

                  Belgium is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule. In its 2018 Stability Programme, the Government plans a gradual improvement of the headline balance from a deficit of 1,0 % of GDP in 2017 to a surplus of 0,1 % of GDP in 2021. The medium-term budgetary objective, set at a balanced budgetary position in structural terms, is planned to be reached by 2020. However, the recalculated structural balance (6) still points to a deficit of 0,2 % in 2020. After having peaked at almost 107 % of GDP in 2014 and decreasing to around 103 % of GDP in 2017, the general government debt-to-GDP ratio is expected to decline to 94,6 % by 2021 according to the 2018 Stability Programme. The macroeconomic scenario underpinning those budgetary projections is plausible. At the same time, the measures needed to support the planned deficit targets from 2019 onwards have not been specified, which contributes to the projected deterioration of the structural balance in 2019 under unchanged policies according to the Commission 2018 spring forecast.

                  (7)

                  On 23 May 2018, the Commission issued a report under Article 126(3) of the TFEU, as Belgium did not make sufficient progress towards compliance with the debt reduction benchmark in 2017. Following an assessment of all the relevant factors, as there is currently not sufficiently robust evidence to conclude on the existence of a significant deviation in Belgium in 2017 and over 2016 and 2017 together, the report could not fully conclude as to whether the debt criterion as defined in the Treaty and in Council Regulation (EC) No 1467/97 (7) is or is not complied with. The Commission will reassess compliance with the debt reduction benchmark on the basis of the ex-post data for 2018 to be notified in Spring 2019.

                  (8)

                  The 2018 Stability Programme indicates that the budgetary impact of the security-related measures in 2017 is significant, and provides adequate evidence of the scope and nature of these additional budgetary costs. According to the Commission, the eligible additional expenditure in 2017 amounted to 0,02 % of GDP for security-related measures. The provisions set out in Articles 5(1) and 6(3) of Regulation (EC) No 1466/97 cater for this additional expenditure, in that the severity of the terrorist threat is an unusual event, its impact on Belgium's public finances is significant and sustainability would not be compromised by allowing for a temporary deviation from the adjustment path towards the medium-term budgetary objective. Therefore, the required adjustment towards the medium-term budgetary objective for 2017 has been reduced to take into account these additional costs.

                  (9)

                  On 11 July 2017, the Council recommended Belgium to ensure that the nominal growth rate of net primary government expenditure (8) does not exceed 1,6 % in 2018, corresponding to an annual structural adjustment of 0,6 % of GDP. At the same time, it was stated that the assessment of the 2018 Draft Budgetary Plan and subsequent assessment of 2018 budget outcomes will need to take due account of the goal of achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of Belgium's public finances. Following the Commission's assessment of the strength of the recovery in Belgium while giving due consideration to its sustainability challenges, carried out in the context of its opinion on Belgium's 2018 Draft Budgetary Plan, no additional elements in that regard need to be taken into account. Based on the Commission 2018 spring forecast, there is a risk of a significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2018 and over 2017 and 2018 taken together.

                  (10)

                  In 2019, in view of Belgium's general government debt ratio above 60 % of GDP and projected output gap of 0,4 %, the nominal growth rate of net primary government expenditure should not exceed 1,8 %, in line with the structural adjustment of 0,6 % of GDP stemming from the commonly agreed adjustment matrix of requirements under the Stability and Growth Pact. Under unchanged policies, there is a risk of a significant deviation from that requirement in 2019 and over 2018 and 2019 taken together. Belgium is prima facie not forecast to comply with the debt rule in 2018 and 2019. Overall, the Council is of the opinion that the necessary measures should be taken as of 2018 to comply with the provisions of the Stability and Growth Pact. The use of any windfall gains to further reduce the general government debt ratio would be prudent.

                  (11)

                  Sustainability of public finances remains a challenge. The pension reforms enacted in 2015 were a significant step to address risks related to the long-term of ageing, yet the 2018 Ageing Report points to a larger than previously expected increase in age-related long-term expenditure for both pensions and long-term care. Pension expenditure is projected to increase by 2,9 percentage points of GDP in 2070, compared with an increase of 1,3 percentage points in 2060 (and a decrease of 0,1 percentage point of GDP on average for the Union) in the previous update. In this respect, the full implementation of the government's reform roadmap could contribute to addressing those risks. In addition, expenditure on long-term care is projected to increase, going from an already above Union average level of 2,3 % of GDP to 4,0 % of GDP by 2070. The reduction of the fragmentation in the organisational landscape of long-term care, due to the distribution of competences across different administrative levels, has the potential to increase the efficiency of spending in this area.

                  (12)

                  Effective budget coordination is essential in a federal Member State like Belgium, where a large part of the spending power has been devolved to sub-national governments. To improve internal coordination and to transpose the fiscal component of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (the ‘Fiscal Compact’), the federal Government and the regional and community governments concluded a cooperation agreement in 2013, with the aim to define overall and individual multiannual fiscal paths, to be monitored by the High Council of Finance. An agreement on individual fiscal targets to be achieved by 2020 has been reached, which is a positive step. However, there is still no formal agreement on annual fiscal targets at all levels of government. Progress has been made in relation to establishing sufficient safeguards regarding the independence of the High Council of Finance.

                  (13)

                  There is scope to give spending restraint a larger role in fiscal consolidation. Total public expenditure as a percentage of GDP is above the euro area average. Despite its potential to stimulate growth in the long run, public investment is low by European standards, particularly in relation to total public spending. Not only is the public capital stock low, the quality of public infrastructure has also been eroded. Spending reviews can contribute to a smarter allocation of expenditure and support growth-friendly consolidation. At regional level, only Flanders is planning to introduce a spending review approach in its budgetary process. In addition, no level of government in Belgium is currently bound by domestic expenditure rules, with the exception of a ceiling for healthcare spending. This contrasts with the increasing adoption of such rules across the Union and prevents spending-based fiscal consolidation. Furthermore, contributions to the Belgian Deposit Guarantee Scheme are not invested in a separate portfolio of low-risk assets.

                  (14)

                  The distribution of debt and assets across Belgian households reveals some pockets of vulnerability, despite their overall favourable wealth position. A prolonged period of house prices increasing faster than households' disposable income accompanied by continued increases in household indebtedness have made the financial situation of households more fragile. A macroprudential measure, primarily focusing on the resilience of the banking sector, has been implemented in April 2018 to address an increase in systemic risks related to the residential real estate sector. In the future, the national framework for macroprudential decision-making could be enhanced to increase the macroprudential authority's ability to deploy macroprudential instruments in a timely manner. House prices appear currently to be slightly overvalued.

                  (15)

                  As indicated in the Recommendation for the euro area, the fight against aggressive tax planning is essential to impede distortions of competition between firms, provide fair treatment of taxpayers and safeguard public finances. Spill-over effects of taxpayers' aggressive tax planning strategies between Member States call for a coordinated action of national policies to complement Union legislation. The former Notional Interest Deduction system that was based on the stock of equity has been replaced by an incremental system. The new system, which shares an incremental baseline with the Allowance for Growth and Investment proposed in the common corporate tax base, will be limited to incremental equity capital calculated on the basis of a five-year average. This change is meant to contribute to the budget-neutrality of the corporate tax reform while addressing the potential use of the system in aggressive tax planning and still alleviating the debt/equity bias issue. While the absence of some specific anti-abuse rules was a cause of concern, a reform of the anti-abuse framework is now being prepared. This is a positive step. It will be closely monitored to ensure that the new rules address all relevant forms of abuse. Based on recent exchanges, the Commission will continue its constructive dialogue to fight against taxpayers aggressive planning strategies.

                  (16)

                  Recent economic growth has been job-rich. Employment growth was robust in 2017 and the unemployment rate is now close to the pre-crisis level. Nevertheless, with regard to the employment rate of the population aged 20 to 64 (68,5 % in 2017), Belgium is not on track to achieving its Europe 2020 target of 73,2 %. Limited progress has been made on the participation in the labour market of disadvantaged groups, as inactivity and unemployment are largely concentrated among the low-skilled, people with a migrant background and older workers, suggesting that both structural and group-specific factors hinder integration in the labour market. In particular, people with a migrant background, which are a large share of the working-age population, continue to face unfavourable labour market outcomes and thus represent a significant untapped labour market potential. In 2016, the employment rate of non-EU born was 49,1 %, which is more than 20 percentage points lower than for native born (the gap was even more pronounced for women). Activation measures could help people from disadvantaged backgrounds, but there is some evidence that those activation measures are not equally effective for all population groups. While some measures have been taken to help new arrivals integrate and to tackle discrimination, there is still a lack of coordination across policy domains and political levels to address the challenge of integrating people with a migrant background in the labour market. Strong regional disparities in labour market performance persist.

                  (17)

                  In spite of efforts to reduce the tax wedge on labour, disincentives to work remain high for some groups, such as single households earning the average wage and second earners. Despite previous measures, the tax wedge for a single household earning the average wage remained among the Union's highest in 2016. The unemployment trap for low-wage earners (67 % of the average wage for a single household) is also one the Union's highest. High tax disincentives for second earners – mainly women – remain.

                  (18)

                  The vacancy rate is among the highest in the Union indicating major skills mismatches related to, among other factors, low mobility and, especially in the bilingual Brussels region, inadequate language skills. Participation in lifelong learning is low. More commitments by individuals and employers to continuous lifelong learning is important to enable people to handle employment transitions.

                  (19)

                  Some progress has been made as regards equal opportunities to participate in quality education and vocational training as the Flemish and the French-speaking Communities are phasing in school reforms. However, despite good average performance in international comparison, long-standing high educational inequalities remain. Educational outcomes of 15 year-old pupils show significant variation linked to the socioeconomic background and migrant status. The performance differences between the Flemish and the French-speaking Communities as well as the underrepresentation of disadvantaged groups among top achievers in science, reading and mathematics are raising concerns. Wide performance gaps between schools go hand-in–hand with unequal educational opportunities. The proportion of tertiary education graduates is high. Yet, inequalities in access to quality education, skills shortages and regional disparities are seen. The proportion of graduates in science, technology and mathematics is one of the lowest in the Union and shortages in these fields could become a major barrier to growth and innovation. Teacher shortages are raising concerns, yet teacher training reforms progress slowly. There is a need to adapt teachers' continuous professional development. Both the Flemish and the French-speaking Communities have embarked on major reforms of their education systems. The implementation of these reforms is planned over the next decade and beyond. However, at the end of 2017, Flanders took the decision to postpone the entry into force of key measures of these reforms by one year. The impact of the reforms and measures will very much depend on their effective implementation and monitoring.

                  (20)

                  Only limited reforms have been undertaken to address the restrictive regulatory framework in services. Flanders abolished the Establishment Act for a selected number of craft professions. Nevertheless, regulation remains high in some professional services. As a result, competition is subdued in these sectors with low entry rates of new companies coming into the market. In the construction sector, horizontal authorisation schemes for access to the construction market are imposed and building permits remain complex despite measures adopted in recent years. The churn rates in the Belgian construction sector are substantially below the Union average, which may indicate that the sector suffers from insufficient competition. This also impacts the delivery of important infrastructure projects. There are also important restrictions in the area of rail and road transport services. The low productivity growth of the Belgian economy is largely driven by low productivity growth in the services sector. Regulatory restrictions also have adverse spill-over effects on users of these services, in particular the manufacturing sector. More in-depth structural reforms of key services sectors would help boost productivity growth, essential to ensure future growth as well as the sustainability of public finances.

                  (21)

                  Also limited progress has been made in improving the functioning of the retail sector. Despite recent reforms, regulatory restrictions still weigh on the sector's performance and deter investment. Prices for many product categories continue to be higher than in the neighbouring countries. More effort is needed to render the business environment competitive and investment-friendly to allow consumers enjoy a greater choice of products and lower prices. In April 2018, the Commission has proposed best practices to guide Member States' reforms of the retail sector.

                  (22)

                  Entrepreneurship performance in Belgium remains low, despite some reforms in the recent years and recent measures whose impact has yet to be assessed. Business dynamism is low, as the business creation rate remains among the lowest in Europe, far lower than the Union average, accompanied by a low destruction rate. Moreover, the administrative burden for firms remains heavy, characterised by complex procedures and a low level of regulatory certainty.

                  (23)

                  Belgium is an average performer in digital public services. In contrast to its good overall position on development of its digital economy, it ranks only average in digital public services. Belgium's federal structure poses specific challenges in establishing coherent and nationwide e-government services. Diverse systems that are not necessarily interoperable systems create friction losses. Serious concerns remain about the justice system in particular as regards delayed actions, digitalisation, and the reliability, comparability and uniformity of court data. The roll-out of initiatives to digitalise certain court services to all courts such as e-box or e-deposit are behind schedule. However, as long as this uniform coding system is not applied across all courts, data on the efficiency of court proceedings will remain of limited reliability and comparability.

                  (24)

                  In spite of recent reforms, the Belgian tax system remains complex. The reform of the corporate income tax will lower statutory rates and contribute to simplifying the system. Nevertheless, many exemptions and distortionary incentives remain, as the rising trend in the total amount of tax breaks shows. The opportunity to shift taxes to more growth-friendly bases could be further used. Revenues from environment-related taxes are still among the lowest in the Union. Indeed, there is considerable potential for a genuine ‘green’ tax shift dealing, inter alia, with the favourable treatment of company cars, which contribute to air pollution, congestion and greenhouse gas emissions.

                  (25)

                  There has been limited progress in dealing with traffic congestion. Mobility suffers from insufficient public investment in infrastructure, distortive tax incentives and lack of competition in transport services, causing major congestion and hindering productivity growth. Road traffic congestion is worsening year by year deterring foreign investment and incurring high social, economic and environmental costs. The most urgent challenges are to complete and upgrade rail and road transport infrastructure especially around and inside Antwerp and Brussels. There are also substantial restrictions in the area of rail and road transport services. The authorities can encourage a more efficient use of existing infrastructure and a modal shift away from individual transport use towards more collective and low-emitting alternatives.

                  (26)

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

                  (27)

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

            HEREBY RECOMMENDS that Belgium takes action in 2018 and 2019 to:

                  1.

                  Ensure that the nominal growth rate of net primary government expenditure does not exceed 1,8 % in 2019, corresponding to an annual structural adjustment of 0,6 % of GDP. Use windfall gains to accelerate the reduction of the general government debt ratio. Pursue the envisaged pension reforms and contain the projected increase in long-term care expenditure. Pursue the full implementation of the 2013 Cooperation Agreement to coordinate fiscal policies of all government levels. Improve the efficiency and composition of public spending at all levels of government to create roo for public investment, in particular by carrying out spending reviews.

                  2.

                  Remove disincentives to work and strengthen the effectiveness of active labour market policies, in particular for the low-skilled, people with a migrant background and older workers. Pursue the education and training reforms, including by fostering equity and increasing the proportion of graduates in science, technology, engineering and mathematics.

                  3.

                  Reduce the regulatory and administrative burden to incentivise entrepreneurship and increase competition in services, particularly retail, construction and professional services. Tackle the growing mobility challenges, in particular through investment in new or existing transport infrastructure and reinforcing incentives to use collective and low-emission transport.

         Done at Brussels, 13 July 2018.

               For the Council

               The President

            H. LÖGER

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

         (2)  Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (OJ L 306, 23.11.2011, p. 25).

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

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

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

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

         (7)  Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, p. 6).

         (8)  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.

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