# EUR-Lex - 52014DC0422 - EN

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# 52014DC0422

**Recommendation for a COUNCIL RECOMMENDATION on Poland’s 2014 national reform programme and delivering a Council opinion on Poland’s 2014 convergence programme /* COM/2014/0422 final - 2014/ () */**

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Recommendation for a

COUNCIL RECOMMENDATION

on Poland’s 2014 national reform programme
and delivering a Council opinion on Poland’s 2014 convergence programme

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[2],

Having regard to the resolutions of the
European Parliament[3],

Having regard to the conclusions of the
European Council,

Having regard to the opinion of the
Employment Committee,

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

Having regard to the opinion of the Social
Protection Committee,

Having regard to the opinion of the
Economic Policy Committee,

Whereas:

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

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

(3) 
On 29 June 2012, the Heads of State or
Government decided on a Compact for Growth and Jobs, providing a coherent
framework for action at national, EU and euro area levels using all possible
levers, instruments and policies. They decided on action to be taken at the
level of the Member States, in particular expressing full commitment to achieving
the objectives of the Europe 2020 Strategy and to implementing the
country-specific recommendations.

(4) 
On 9 July 2013, the Council adopted a
recommendation on Poland’s national reform programme for 2013 and delivered its
opinion on Poland’s updated convergence programme for 2012-2016.

(5) 
On 13 November 2013, the Commission adopted the
Annual Growth Survey[4],
marking the start of the 2014 European Semester of economic policy
coordination. On the same day on the basis of Regulation (EU) No 1176/2011, the
Commission adopted the Alert Mechanism Report[5],
in which it did not identify Poland as one of the Member States for which an
in-depth review would be carried out.

(6) 
On 20 December 2013, the European Council
endorsed the priorities for ensuring financial stability, fiscal consolidation
and action to foster growth. It underscored the need to pursue differentiated,
growth-friendly fiscal consolidation, to restore normal lending conditions to
the economy, to promote growth and competitiveness, to tackle unemployment and
the social consequences of the crisis, and to modernise public administration.

(7) 
On 24 April 2014, Poland submitted its 2014 national
reform programme and on 30 April 2014 its 2014 convergence programme. In order
to take account of their interlinkages, the two programmes have been assessed
at the same time.

(8) 
The objective of the budgetary strategy outlined
in the 2014 Convergence Programme is to bring the deficit below the 3% of GDP
reference value of the Treaty by 2015 and reach the medium-term objective by
2018. The medium-term objective (-1% of GDP in structural terms) is more
stringent than what the Stability and Growth Pact requires. The targets for the
headline deficit presented in the 2014 Convergence Programme are consistent
with a timely correction of the excessive deficit. Moreover, while the
(recalculated) structural adjustment in 2014 is in line with the Council recommendation
under the Excessive Deficit Procedure, it is below the required improvement in
2015. In the years after the planned correction of the excessive deficit, the
planned (recalculated) annual progress towards the medium-term objective is
lower than the requirement of the Stability and Growth Pact. Therefore, the
programme objectives are partly in line with the requirements of the Stability
and Growth Pact. The general government debt is projected to remain below 60%
of GDP over the programme period. The Polish authorities project it to fall
sharply from 57.1% of GDP in 2013 to 49.5% in 2014, mainly due to the large,
one-off transfer of pension fund assets, and remain at this level in 2015. The
macroeconomic scenario underpinning the budgetary projections in the programme
is plausible for 2014 and optimistic for 2015 with a higher rate of real GDP
growth of 3.8% compared to 3.4% in the Commission 2014 spring forecast. Based
on its assessment of the programme and the Commission forecast, pursuant to
Council Regulation (EC) No 1466/97, the Council is of the opinion that while
Poland is expected to stay within the ceiling of the headline deficit
recommended by the Council for 2014, there are risks to a sustainable
correction of the excessive deficit in 2015 and, thereafter, to the appropriate
adjustment path towards the medium-term objective.

(9) 
To ensure the success of the fiscal
consolidation strategy, it is important that the fiscal consolidation is backed
by comprehensive structural reforms. A low share of growth-enhancing
expenditure (education, research and innovation) hampers long-term growth
prospects. Healthcare spending is expected to grow considerably in the medium
to long term because of an aging society. The burden on public finances could
be lowered and the access to healthcare improved through strengthening primary
care and referral systems and exploiting the potential for cost-efficiency
gains in hospital care. Low tax compliance remains an issue, in particular in
terms of efficiency of tax administration and in the level of administrative
burden on taxpayers. Poland has an extensive system of reduced VAT rates which
contributes to the highest VAT policy gap in the EU. It leads to revenue losses
and increased tax compliance costs. The level of energy taxation is relatively
low. Steps have been taken in the recent past to improve the Polish fiscal
framework. Nevertheless, the framework would benefit from the introduction of a
fully-fledged independent fiscal council, responsible for ex-ante checks of
compliance with fiscal rules, an assessment of macroeconomic and budgetary
forecasts and an analysis of the long term sustainability of public finances as
well as an ex-post assessment of compliance with fiscal rules.

(10) 
Youth unemployment has been gradually increasing
over the last year, which partly results from the ongoing mismatch between
education outcomes and labour market needs as well as the growing proportion of
young people that are not in education, employment or training. Despite ongoing efforts to reform the vocational education and
training system, there is a need to further facilitate
access to good quality apprenticeships and work-based learning, to strengthen
cooperation between schools and employers and to reach out non-registered youth,
in line with the objectives of a youth guarantee. Adjustment of skills to
labour market requirements is also particularly important in the context of
lifelong learning, where participation remains very low, especially with regard
to older workers, whose competencies are often outdated. Labour market
segmentation persists with the extensive use of fixed-term employment,
including civil law contracts. The incidence of fixed-term employment is
particularly high among the young. While fixed-term contracts are often argued
to be an instrument for the unemployed to enter the labour market with a view
to later moving on to a permanent contract, this seems not to be the case for
the majority of workers in Poland, given that the transition rate from
fixed-term employment to permanent employment is low, which tends to negatively
influence productivity and the quality of human capital.

(11) 
Female labour market participation remains low. Poland has taken several measures to enhance female employment,
including an increase in the availability of early childcare services
(nurseries), and an increase in public funding for kindergartens to encourage
parents to enrol their children in pre-school education. Nevertheless,
availability of early childcare services is still low, especially in rural
areas, and disparities in access to pre-school education remain. Labour market participation
of older workers in Poland remains low. Early retirement possibilities have
been reduced significantly but further efforts are needed to increase the
employability of older workers and the effective duration of working life.
Reforming the special pension schemes for miners and farmers remains a
challenge. The farmers’ scheme (KRUS) creates incentives for small-scale
farmers to remain in the agricultural sector, resulting in hidden unemployment
in rural areas and stimulating the informal economy. Miners continue to enjoy
privileges in terms of pension rights and minimum work record required. Both
pension schemes impede sectoral and territorial labour mobility.

(12) 
Poland is among the EU countries with the lowest
level of R&D expenditure and is one of the worst performers in broader
innovation indicators. Private R&D expenditure is
especially low. Low R&D spending is coupled with weak research and
innovation activity by companies and an insufficiently innovation-friendly
business environment. The innovation support system in
Poland has been risk-averse, based mostly on grants, supporting technology
absorption and transfer without a big impact on genuinely new innovation.
Existing tax incentives for R&D are ineffective in promoting internal
R&D by the private sector and are used only by big companies. Polish
enterprises have relied largely on technology absorption. While this has been
successful in ensuring productivity gains and economic growth, Poland now needs
a transition towards a more indigenous innovation-based model. Raising the
innovation capacity of Polish companies, improving links between science and
industry and developing targeted instruments adapted to the whole innovation
cycle remains a challenge.

(13) 
There are still very high potential gains from
improvements in energy efficiency in all sectors of Poland’s economy and such
gains could support growth, improve competitiveness and contribute to reducing
Poland's energy dependency. Domestic energy generation capacity is ageing and
the electricity grid is still congested but projects to create more
interconnection capacity to neighbouring Member States are advancing. The key
problem in the natural gas market remains the lack of diversification and
competition.

(14) 
Poland’s underdeveloped transport and broadband infrastructure
remains a major bottleneck to growth. In particular, significant investments
are needed in the degraded railway network to increase the competitiveness of
the rail sector and achieve a better balance between road and rail transport.
Only around one third of the total of about 20000 km of operated railway lines
is in a good technical condition. Problems with the
timely implementation of railway projects continue. Resource
efficiency can be increased by improving waste management.

(15) 
Contract enforcement in Poland is lengthy and
the procedure to obtain construction permits is long and burdensome. Tax compliance costs are high, which is a major problem in the
business environment. Poland has made substantial
progress in implementing an ambitious reform facilitating access to regulated
professions.

(16) 
In the context of the European Semester, the
Commission has carried out a comprehensive analysis of Poland's economic
policy. It has assessed the convergence programme and the national reform
programme. It has taken into account not only their relevance for sustainable
fiscal and socio-economic policy in Poland but also their compliance with EU
rules and guidance, given the need to reinforce the overall economic governance
of the European Union by providing EU-level input into future national
decisions. Its recommendations under the European Semester are
reflected in recommendations (1) to (6) below.

(17) 
In the light of this assessment, the Council has
examined Poland’s convergence programme, and its opinion[6] is reflected in
particular in recommendation (1) below.

HEREBY RECOMMENDS that Poland take
action within the period 2014-2015 to:

1. 
Reinforce the budgetary strategy to ensure the
correction of the excessive deficit in a sustainable manner by 2015 through
achieving the structural adjustment effort specified in the Council
recommendation under the Excessive Deficit Procedure. After the correction of
the excessive deficit and until the medium-term objective is achieved, pursue
an annual structural adjustment of 0.5% of GDP as a benchmark. A durable
correction of the fiscal imbalances requires a credible implementation of ambitious
structural reforms to increase the adjustment capacity and boost growth and
employment. In that regard, minimise cuts in growth-enhancing investment,
improve the targeting of social policies and the cost effectiveness of spending
and the overall efficiency of the healthcare sector, broaden the tax base by
addressing the issue of an extensive system of reduced VAT rates, and improve
tax compliance, in particular by increasing the efficiency of the tax
administration. Establish an independent fiscal council.

2. 
Strengthen efforts to reduce youth unemployment,
notably by further improving the relevance of education to labour market needs,
increasing the availability of apprenticeships and work-based learning places and
by strengthening outreach to unregistered youth and the cooperation between
schools and employers, in line with the objectives of a youth guarantee. Increase
adult's participation in lifelong learning in order to adjust skills supply to
skills demand. Combat labour market segmentation by stepping up efforts to
ensure a better transition from fixed-term to permanent employment and by
reducing the excessive use of civil law contracts.

3. 
Continue efforts to increase female labour
market participation, in particular by taking further steps to increase the
availability of affordable quality childcare and pre-school education and
ensuring stable funding. Include farmers in the general pension system,
starting by speeding up the creation of the system for assessment and recording
of farmers' incomes. Phase out the special pension system for miners with a
view to integrating them into the general scheme. Underpin the general pension
reform by stepping up efforts to promote the employability of older workers to
raise exit ages from the labour market.

4. 
Improve the effectiveness of tax incentives in
promoting R&D in the private sector as part of the efforts to strengthen
the links between research, innovation and industrial policy, and better target
existing instruments at the different stages of the innovation cycle.

5. 
Renew and extend energy generation capacity and
improve efficiency in the whole energy chain. Speed up and extend the
development of the electricity grid, including cross-border interconnections to
neighbouring Member States, and develop the gas interconnector with Lithuania. Ensure
effective implementation of railway investment projects without further delay
and improve the administrative capacity in this sector. Accelerate efforts to
increase broadband coverage. Improve waste management.

6. 
Take further steps to improve the business
environment by simplifying contract enforcement and requirements for
construction permits. Step up efforts to reduce costs and time spent on tax
compliance by businesses. Complete the ongoing reform aimed at facilitating
access to regulated professions.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 2.8.1997, p. 1.

[2]               COM(2014) 422 final.

[3]               P7_TA(2014)0128 and P7_TA(2014)0129.

[4]               COM(2013) 800 final.

[5]               COM(2013) 790 final.

[6]               Under Article 9(2) of Council Regulation (EC) No
1466/97.