# IMMC.COM%282023%29621%20final.ENG.xhtml.1_EN_ACT_part1_v6.docx

european flagEUROPEAN COMMISSION Brussels, 24.5.2023 COM(2023) 621 final Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Poland and delivering a Council opinion on the 2023 Convergence Programme of Poland {SWD(2023) 621 final}
Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Poland and delivering a Council opinion on the 2023 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 parti cular Article 9(2) th ereof , 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) Regulation (EU) 2021/241 of the European Parliament and of the Council 2 , which established the Recovery and Resilience Facility, entered into force on 19 February 2021. The Recovery and Resilience Facility provides financial support to the Member States for the implementation of reforms and investment s , entailing a fiscal impulse financed by the EU . In line with the European Semester priorities, i t contributes to economic and social recovery and to the implementation of sustainable reforms and investment s , in particular to promote the green and digital transition and make the Member States’ economies more resilient . It also helps strengthen public finances and boost growth and job creation in the medium and long term , improve territorial cohesion within the EU and support the continued implementation of the European Pillar of Social Rights . The maximum financial contribution per Member State under the Recovery and Resilience Facility was updated on 30 June 2022, in accordance with Article 11(2) of Regulation (EU) 2021/241. (2) On 2 2 November 202 2 , the Commission adopted the 2023 Annual Sustainable Growth Survey, 3 marking the start of the 202 3 European Semester for economic policy coordination. The European Council endorsed the priorities of the s urvey around the four dimensions of competitive sustainability on 2 3 March 202 3 . On 2 2 November 202 2 , on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2023 Alert Mechanism Report, in which it did not identify Poland as one of the Member States that may be affected or may be at risk of being affected by imbalances, and for which an in-depth review would be needed. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which the Council adopted on 16 May 202 3, as well as the proposal for the 202 3 Joint Employment Report analysing the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights, which the Council adopted on 13 March 202 3 . (3) While the EU economies are showing remarkable resilience, t he geopolitical context continues to have a negative impact . As the EU stand s firmly with Ukraine, the EU economic and social policy agenda is focused on reducing the negative impact of energy shocks on both vulnerable households and companies in the short term , and on keep ing up efforts to deliver on the green and digital transition, support sustainable and inclusive growth , safeguard macroeconomic stability, and increase resilience in the medium term. It also focuses heavily on increasing the EU’s competitiveness and productivity. (4) On 1 February 2023, the Commission issued the Communication A Green Deal Industrial Plan for the Net-Zero Age 4 to boost the competitiveness of the EU ’ s net-zero industry and support the fast transition to climate neutrality . The p lan complements ongoing efforts under the European Green Deal and REPowerEU. It aims to provide a more supportive environment fo r scaling up the EU ’ s manufacturing capacity for the net-zero technologies and products required to meet the EU’s ambitious climate targets , as well as ensuring access to relevant critical raw materials, including by diversifying sourcing, properly exploiting geological resources in Member States and maximising the recycling of raw material s . The plan is based on four pillars: a predictable and simplified regulatory environment, speeding up access to finance, enhancing skills, and open trade for resilient supply chains. On 16 March 2023, the Commission also issued the Communication Long-term competitiveness of the EU: looking beyond 2030 5 , structured along nine mutually reinforcing drivers with the objective to work towards a growth enhancing regulatory framework . It sets policy priorities aimed at actively ensuring structural improvements, well focused investment s and regulatory measures for the long - term competitiveness of the EU and its Member States. The recommendations below help address those priorities. (5) I n 2023, t he European Semester for economic policy coordination continues to evolve in line with the implementation of the Recovery and Resilience Facility. F ull y implement ing the recovery and resilience plans remains essential for deliver ing the policy priorities under the European Semester, as the plans address all or a significant subset of the relevant country-specific recommendations issued in recent years . The 2019 , 2020 and 2022 country-specific recommendations remain equally relevant also for recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241 .
(6) The REPowerEU Regulation 6 , adopted on 27 February 2023, aims to rapidly phase out the EU’s dependency on Russian fossil fuel imports . This will contribut e toward s energy security and the diversification of the EU’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency. The Regulation enables Member States to add a new REPowerEU chapter to their national recovery and resilience plans in order to finance key reforms and investments that will help achieve the REPowerEU objectives . They will also help boost the competitiveness of the EU's net-zero industry as outlined in the Green Deal Industrial Plan for the Net-Zero Age and address the energy-rel ated country-specific recommendations issued to the Member States in 2022 and , where applicable , in 2023 . T he REPowerEU Regulation introduces a new category of non-repayable financial support, made available to Member States to finance new energy-related reforms and investments under the ir r ecovery and r esilience p lans. (7) On 8 March 2023, the Commission adopted a c ommunication providing fiscal policy guidance for 2024 . It aim s to support the preparation of Member States’ s tability and c onvergence p rogrammes and thereby strengthening policy coordination 7 . It recalled that the general escape clause of the Stability and Growth Pact will be deactivated at the end of 2023. The Commission called for fiscal policies in 2023- 20 24 that ensure medium-term debt sustainability as well as rais e potential growth in a sustainable manner. Member States were invited to set out in their 2023 s tability and c onvergence p rogrammes how their fiscal plans will ensure that the 3% of GDP deficit reference value is adhered to as well as plausible and continuous debt reduction, or for debt to be kept at prudent levels in the medium term. The Commission invited Member States to phase out national fiscal measures introduced to protect households and firms from the energy price shock, starting with the least targeted ones. It indicated that, if support measures needed to be extended because of renewed energy price pressures, Member States should target such measures much better than in the past to wards vulnerable households and firms. The Commission proposed that the fiscal recommendations would be quantified and differentiated and be formulated on the basis of net primary expenditure as proposed in its Commission Communication on orientations for a reform of the EU economic governance framework 8 . It recommended that a ll Member States should continue to protect nationally financed investment and ensure the effective use of the R ecovery and R esilience F acility and other EU funds, in particular in light of the green and digital transition and resilience objectives. The Commission indicated that it will propose to the Council to open deficit-based e xcessive d eficit p rocedures in spring 2024 on the basis of the outturn data for 2023, in line with existing legal provisions. (8) On 26 April 2023, the Commission presented legislative proposals to implement a comprehensive reform of the EU's economic governance rules. The central objective of the proposals is to strengthen public debt sustainability and promote sustainable and inclusive growth in all Member States through reforms and investment. The proposals aim at providing Member States with more control over the design of their medium-term plans, while putting in place a more stringent enforcement regime to ensure that Member States deliver on the commitments undertake n in their medium-term fiscal-structural plans. The objective is to conclude the legislative work in 2023. (9) On 3 rd May 202 1 , Poland submitted its national recovery and resilience plan to the Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant to Article 19 of Regulation (EU) 2021/241, the Commission assessed the relevance, effectiveness, efficiency and coherence of the recovery and resilience plan, in accordance with the assessment guidelines of Annex V to that Regulation. On 17 June 202 2 , the Council adopted its Decision on the approval of the assessment of the recovery and resilience plan for Poland 9 . The release of instalments is conditional on a decision by the Commission, taken in accordance with Article 24(5) of Regula tion (EU) 2021/241, that Poland has satisfactorily fulfilled the relevant milestones and targets set out in the Council Implementing Decision. Satisfactory fulfilment presupposes that the achievement of preceding milestones and targets has not been reversed. (10) On 27 April 202 3 , Poland submitted its 2023 National Reform Programme and its 2023 Convergence Programme, in line with Article 8(1 ) of Regulation (EC) No 1466/97 . To take account of their interlinkages, the two programmes have been assessed together. In accordance with Article 27 of Regulation (EU) 2021/241, the 2023 National Reform Programme also reflects Poland ’s biannual reporting on the progress made in achieving its recovery and resilience plan. (11) The Commission published the 202 3 country report for Poland 10 on 24 May 2023 . It assessed Poland ’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2022 and took stock of Poland ’s implementation of the recovery and resilience plan. Based on this analysis, the country report identified gaps with respect to those challenges that are not addressed or only partially addressed by the recovery and resilience plan, as well as new and emerging challenges. It also assessed Poland ’s progress on implementing the European Pillar of Social Rights and on achieving the EU headline targets on employment, skills and poverty reduction, as well as progress in achieving the UN’s Sustainable Development Goals. (12) Based on data validated by Eurostat, 11 Poland’s general government deficit increased from 1.8% of GDP in 2021 to 3.7% in 2022, while general government debt fell from 53.6% of GDP at the end of 2021 t o 49.1% at the end of 2022. On 24 May 2023, the Commission published a report under Article 126(3) TFEU; 12 the report discussed the budgetary situation of Poland, as its general government deficit in 2022 exceeded the 3% of GDP Treaty reference value . The report concluded that the deficit criterion was not fulfilled . In line with the Communication of 8 March 2023, 13 the Commission did not propose to open new excessive deficit procedures in spring 2023; in turn, the Commission stated that it would propose to the Council to open deficit-based excessive deficit procedures in spring 2024, on the basis of the outturn data for 2023. Poland should take account of this in the execution of its 2023 budget and in preparing its budget for 2024 . (13) The general government balance has been impacted by the fiscal policy measures adopted to mitigate the economic and social impact of the increase in energy prices. In 2022, such revenue-decreasing measures included the reduced VAT rates and excise duties on energy and fuels; while such expenditure-increasing measures included cash subsidies and a cap on electricity prices for households and gas cost subsidies to companies. The Commission estimates the net budgetary cost of these measures at 1.9 % of GDP in 2022. The general government balance has also been impacted by the budgetary cost of temporary protection to displaced persons from Ukraine, which is estimated at 0.5% of GDP in 2022. At the same time, the estimated cost of COVID-19 temporary emergency measures dropped to 0.7% of GDP in 2022, from 2.4% in 2021. (14) On 18 June 2021, the Council recommended that in 2022 Poland 14 pursue a supportive fiscal stance, including from the impulse provided by the Recovery and Resilience Facility, and preserve nationally financed investment. (15) According to the Commission estimates, the fiscal stance 15 in 2022 was supportive, at – 3.0% of GDP, as recommended by the Council. As recommended by the Council, Poland continued to support the recovery with investments financed by the Recovery and Resilience Facility. Expenditure financed by Recovery and Resilience Facility grants and other EU funds amounted to 1.0% of GDP in 2022 (1.3% of GDP in 2021). Nationally financed investment provided an expansionary contribution of 0.2 percentage points to the fiscal stance. 16 Poland therefore preserved nationally financed investment, as recommended by the Council. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided an expansionary contribution of 2. 3 percentage points to the fiscal stance. This significant expansionary contribution included the additional impact of measures to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 1.9 % of GDP), as well as the costs to offer temporary protection to displaced persons from Ukraine (0.5% of GDP). Poland therefore sufficiently kept under control the growth in nationally financed current expenditure. (16) The macroeconomic scenario underpinning the budgetary projections in the Convergence Programme is realistic in 2023 and thereafter. The government projects real GDP to grow by 0.9% in 2023 and 2.8% in 2024. By comparison, the Commission 2023 spring forecast projects a slightly lower real GDP growth of 0.7% in 2023 and 2.7 % in 2024, mainly due to lower projected contribution of domestic demand . (17) In its 2023 Convergence Programme, the government expects that the general government deficit will increase to 4.7% of GDP in 2023. The increase in 2023 mainly reflects increased spending on defence , health, public sector wages and the indexation of pensions while costs of measures to mitigate the economic and social impact of the increase in energy prices are set to remain elevated . According to the Programme, the general government debt-to-GDP ratio is expected to increase from 49.1% at the end of 2022 to 50.5% at the end of 2023. The Commission 2023 spring forecast projects a government deficit of 5.0 % of GDP for 2023. This is higher than the deficit projected in the Convergence Programme , mainly due to measures providing extraordinary aid to farmers which were not yet specified in the Programme . The Commission 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 50.5 % at the end of 2023. (18) The government balance in 2023 is expected to continue to be impacted by the measures adopted to mitigate the economic and social impact of the increase in energy prices. They consist mainly of new measures such as price freeze schemes for electricity and gas and subsidies to energy producers and energy-intensive industries. The cost of these measures is partly offset by taxes on windfall profits of energy suppliers, namely levies on gas and electricity producers. Taking these revenues into account, the net budgetary cost of the support measures is projected in the Commission 2023 spring forecast at 1. 7 % of GDP in 2023 17 . Most measures in 2023 do not appear targeted to the most vulnerable households or firms and they do not fully preserve the price signal to reduce energy demand and increase energy efficiency. As a result, the amount of targeted support measures, to be taken into account in the assessment of compliance with the fiscal recommendation for 2023, is estimated in the Commission 2023 spring forecast at 0.2% of GDP in 2023 (compared to 0.1% of GDP in 2022). The budgetary cost of temporary protection to displaced persons from Ukraine is projected to decrease by 0.2 percentage points of GDP compared to 2022. Finally, the 2023 government balance is expected to benefit from the phasing out of COVID-19 temporary emergency measures of 0. 7 % of GDP. (19) On 12 July 2022, the Council recommended 18 that Poland take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance 19 , taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Poland should stand ready to adjust current spending to the evolving situation. Poland was also recommended to expand public investment for the green and digital transitions, and for energy security taking into account the REPowerEU initiative, including by making use of the Recovery and Resilience Facility and other Union funds. (20) In 2023, the fiscal stance is projected in the Commission 2023 spring forecast to be expansionary ( - 0.8 % of GDP), in a context of high inflation. This follows an expansionary fiscal stance in 2022 (- 3.0% of GDP). The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide a n expansionary contribution of 0. 8 % of GDP to the fiscal stance. This includes the increased cost of the targeted support measures to households and firms most vulnerable to energy price hikes by 0. 1 % of GDP. This also includes lower costs to offer temporary protection to displaced persons from Ukraine (by 0.2% of GDP). The expansionary contribution of nationally financed net primary current expenditure is therefore not due to the targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. The expansionary growth in nationally financed primary current expenditure is driven by untargeted energy measures, higher spending on defence and health as well as permanent increases in public sector wages and social benefits. In sum , the projected growth of nationally financed primary current expenditure is not in line with the recommendation of the Council. Expenditure financed by Recovery and Resilience Facility grants and other EU funds is project to amount to 1.8% of GDP in 2023, while nationally financed investment is projected to provide a contractionary contribution to the fiscal stance of 0.2 percentage points. 20 Therefore, Poland plans to finance additional investment through the Recovery and Resilience Facility and other EU funds, and it is not projected to preserve nationally financed investment. It plans to finance public investment for the green and digital transitions, and for energy security , in the areas such as energy efficiency of buildings, onshore and offshore wind power, energy storage, modernisation of grids, hydrogen generation and sustainable mobility, which are funded by the Recovery and Resilience Facility and other EU funds . (21) According to the Convergence Programme the general government deficit is expected to decline to 3.4% of GDP in 2024. The decrease in 2024 mainly reflects the withdrawal of the support measures related to the energy crisis. The programme expects the general government debt-to-GDP ratio to increase to 52.4% at the end of 2024. Based on policy measures known at the cut-off date of the forecast, the Commission 2023 spring forecast projects a government deficit of 3.7% of GDP in 2024. This is higher than the deficit projected in the programme, mainly due to measures not yet specified in the Programme. The Commission 2023 spring forecast projects a similar general government debt-to-GDP ratio, of 53.0 % at the end of 2024. (22) The Convergence Programme envisages the phasing out of most of the energy support measures in 2024. The Commission currently assumes net cost of energy support measures of 0.3% of GDP in 2024. This hinges upon the assumption of no renewed energy price increases. Most of the energy support measures that are currently planned to remain in place in 2024 do not appear targeted to vulnerable households or firms and do not fully preserve the price signal to reduce energy demand and increase energy efficiency. (23) Council Regulation (EC) No 1466/97 calls for an annual improvement in the structural budget balance toward the medium-term objective by 0.5% of GDP as a benchmark. 21 Taking into account fiscal sustainability considerations, 22 the need to reduce the deficit to below the 3% of GDP reference value, an improvement in the structural balance of at least 0.5 % of GDP for 2024 would be appropriate. To ensure such an improvement, the growth in net nationally financed primary expenditure 23 in 2024 should not exceed 7.8 %, as reflected in this recommendation. At the same time, the remaining energy support measures (currently estimated by the Commission at 1.7% of GDP in 2023) should be phased out, contingent on energy market developments and starting from the least targeted ones, and the related savings should be used to reduce the government deficit. Based on Commission estimates, this would lead to a growth in net primary expenditure below the recommended maximum growth for 2024. In addition, according to the Commission 2023 spring forecast, the growth in net nationally financed primary current expenditure in 2023 is not in line with the recommendation of the Council. If this is confirmed, lower growth in net primary expenditure in 2024 would be appropriate. (24) Assuming unchanged policies, the Commission 2023 spring forecast projects net nationally financed primary expenditure to grow at 5.6 % in 2024, which is below the recommended growth rate. The adjustment projected in the Commission forecast is slightly less than the savings from the full phasing out of energy support measures , as some of the energy support measures are projected to remain in force in 2024 . (25) According to the programme, government investment is expected to remain stable at 4. 2 % of GDP in 2024 , similar level as in 2023 . The programme refers to reforms and investments, that are expected to contribute to fiscal sustainability and sustainable and inclusive growth. These include reforms of the fiscal framework, which are also part of the Recovery and Resilience Plan.
(26) The Convergence Programme outlines a medium-term fiscal path until 2026. According to the programme, the general government deficit is expected to decline to 2.9% of GDP in 2025 and remain at this level in 2026. The general government deficit is therefore planned to decrease below 3% of GDP in 2025. According to the programme, the general government debt-to-GDP ratio is expected to increase from 52.4% at the end of 2024 to 55.4% by the end of 2026. (27) Considerable scope remains to increase the efficiency of public spending on social benefits. Social benefits remain largely untargeted and without means testing at household level. Much of public spending is captured by high-income households, as the richest 20% of Poles receive the same share of public cash transfers as the poorest 20%. Better targeting of benefits would lead to more efficient use of public resources in combatting poverty and supporting those most in need. (28) The rapidly ag e ing population poses challenges for the Polish pension system . The existing pension system assumes a retirement age that doe s not increase even as average life expectancy and years spent in retirement continue to rise. The current defined contribution pension system makes the system financially balanced but would lead to a strong drop in future pension benefits in relation to the final salary. This would mean that a large proportion of pensioners would be at risk of poverty. Commission analysis shows that merely to maintain the level of benefits close to the current level, Poland would need to spend an additional 6 . 7% of its GDP by 2070. Recent changes in the general pension system and the costly special pension regime s have made pension pay - outs more generous to current pensioners . This has reduced incentives to work longer than the relatively low retirement age , which is set at 60 years for women and 65 for men, and has increased ag e ing - related spending pressures . (29) In accordance with Article 19(3), point (b) and Annex V, criterion 2.2 of Regulation (EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. Due to its late adoption in June 2022, the implementation of Poland ’s recovery and resilience plan has been significantly delayed. S trengthening the independence and impartiality of courts and remedying the situation of judges affected by the decisions of the Disciplinary Chamber of the Supreme Court in disciplinary cases and judicial immunity cases are a pre condition for the Commission to disburse any payment to the country and ensure the protection of the financial interests of the Union , allowing for a swift and steady implementation of the plan . Poland has started to implement key measures in the RRP, among which reforms in the areas of the fiscal framework, healthcare, digital transition, energy efficiency and labour market. Although Poland has not officially submitted addenda to the plan nor a REPowerEU chapter, ongoing discussions with the Commission are taking place . I n accordance with Article 14(6) of Regulation (EU) 2021/241, on 31 March 2023, Poland expressed its intention to request EUR 23 billion of additional loan support under the Recovery and Resilience Facility . The swift inclusion of the new REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investments to be financed in support of Poland’s strategic objectives in the field of energy and the green transition. The systematic and effective involvement of local and regional authorities, social partners and other relevant stakeholders as well as the overall quality of social dialogue remain important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond the plan, to ensure broad ownership of the overall policy agenda. (30) The Commission approved all of Poland’s cohesion policy programming documents in 2022 . Proceeding with the swift implementation of the cohesion policy programmes in complementarity and synergy with the r ecovery and r esilience p lan, including the REPowerEU chapter, is key to achiev ing the green and digital transition, increase economic and social resilience, as well achieving a balanced territorial development in Poland . (31) Beyond the economic and social challenges addressed by the recovery and resilience plan, Poland faces a number of additional challenges related to the investment climate , energy policy and the green transition . (32) The independence, efficiency and quality of the justice system are essential for a stable and predictable business environment as well as a friendly investment climate . These play an important role in achieving sustainable economic growth over the medium to long term. The investment climate in Poland continues to be impaired by serious concerns related to the r u le of law , including the independence of the judiciary , as identified in rulings by the Court of Justice of the European Union and the European Court of Human Rights . Furthermore, on 15 February 2023, the Commission referred Poland to the Court of Justice for violations of EU law by the Polish Constitutional Tribunal and its case law , violations that particularly challeng e the primacy of EU law . (33) Poland’s energy mix is heavily dominated by fossil fuels, with coal accounting for around 60% of it and renewable energy sources just 1 3 % in 20 21. Poland has stopped importing natural gas from Russia since April 2022 and oil since February 2023. The impact on the security of the country’s energy supply has been lessened by the diversification efforts of recent years . Poland has been decarbonising at a substantially lower rate than other EU member states. Poland still has ample scope to address regulatory and administrative barriers to accelerat ing the deployment of renewable energy sources. Increasing energy generation from renewable sources is key to decarbonising the Polish economy and to achieving climate neutrality. To unleash the potential of renewable sources, Poland needs to improve its internal networks for energy transmission and distribution as well as those for energy storage, and reform its regulatory environment. In particular, Poland should implement measures to remove barriers to the permitting process for renewable energy sources. These measures should focus on : (i) accelerating the inclusion of renewable energy sources in spatial plans; (ii) setting up renewables go-to areas; (iii) amending rules on grid connection permits; and (iv) modernising obsolete and inefficient distribution networks. Further reforms are needed to : (i) enable industry to benefit from clean energy through long-term contracts for power supply and demand , such as power purchase agreements; (ii) remove restrictions on energy communities; and (iii) promote the deployment of renewables in the district heating sector. (34) Poland’s consumption of natural gas has dropped by 13% in the period August 2022 - March 2023, compared with the average gas consumption over the same period in the preceding 5 years, slight below the 15% reduction target. Poland is encouraged to enhance efforts to temporarily reduce gas demand until 31 March 2024 24 . Despite a number of measures in place to contain energy demand, further efforts are needed to improve energy efficiency, especially for residential buildings and district heating systems. Final energy consumption in Poland was 75 . 2 Mtoe in 2021, and has been on the rise throughout the last decade. M ore than half of the energy demand of residential buildings for heating is currently satisfied by coal, either through direct use or indirectly in district heating. However, residential buildings remain largely energy inefficient, contributing to higher investment needs compared to other EU countries. Additionally, the district heating sector requires targeted reforms and stepped-up investments to accelerate its decarbonisation, increase its efficiency and ensure its long-term financial viability. (35) Between 2005 and 2021, greenhouse gas emissions from domestic transport except aviation in Poland have grown by 88.3%, is in stark contrast to the decrease by 7.5% in the EU on average. Even with the additional measures included in Poland’s energy and climate plan, by 2030, greenhouse gas emissions from this sector are projected to be still 56% higher than in 2005. Building on the reforms and investments in Poland’s resilience and recovery plan, further effort is necessary to promote sustainable public transport modes. The electrification of domestic transport needs to go hand in hand with the decarbonisation of the electricity supply to reduce sectoral emissions effectively. (36) Labour and skills shortages in sectors and occupations key for the green transition , including manufacturing, deployment and maintenance of net-zero technologies are cre ating bottlenecks in the transition to a net-zero economy. High - quality education and training systems that respond to changing labour market needs and targeted upskilling and reskilling measures are key to reduc ing skills shortages and promot ing labour inclusion and reallocation. To unlock untapped labour supply, these measures need to be accessible, in particular for individuals and in sectors and regions most affected by the green transition. In Poland, in the context of the green transition, labour shortages in key sectors have increased in recent years, also linked to a lack of relevant skills , and are creating bottlenecks in the transition to a net-zero economy. In 2022, labour shortages were reported as a factor that constrain ed production in industry (63.4% of firms) and construction (74.6% of firms). (37) In ligh t of the Commi ssion’s assessment, the Council has examined the 202 3 Convergence Programm e and its opinion 25 is reflected in recommendation (1) below . HEREBY RECOMMENDS that Poland take action in 2023 and 2024 to: 1. Wind down the energy support measures in force by the end of 2023, using the related savings to reduce the government deficit. Should renewed energy price increases necessitate support measures, ensure that these are targeted at protecting vulnerable households and firms, fiscally affordable, and preserve incentives for energy savings. Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 7.8%. Preserve nationally financed public investment and ensure the effective absorption of RRF grants and other EU funds, in particular to foster the green and digital transitions. For the period beyond 2024, continue to pursue a medium-term fiscal strategy of gradual and sustainable consolidation, combined with investments and reforms conducive to higher sustainable growth, to achieve a prudent medium-term fiscal position. Improve the efficiency of public spending, including through better targeting of social benefits. Ensure the adequacy of future pension benefits and the sustainability of the pension system by taking measures to increase the effective retirement age and reforming preferential pension schemes. 2. Urgently fulfil the required milestones and targets related to the protection of the financ ial interests of the Union with a view to allow for a swift and steady implementation of its recovery and resilience plan. Swiftly finalise the REPowerEU chapter with a view to rapidly starting its implementation. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan. 3. Enhance the investment climate, in cluding by safeguarding judicial independence.
4. Accelerate the phase-out of fossil fuels and the deployment of renewable energy . Reform the legal framewo rk for grid connection permit ting and for renewable energy sources , including energy communities, biomethane and renewable hydrogen. Implement measures to promote energy savings and gas demand reductions. Scale up investment in energy efficiency f or buildings and decarbonis e the heat supply in district heating to address energy poverty . Further promote sustainable public transport modes. Step up policy efforts aimed at the provision and acquisition of the skills needed for the green transition, including for building renovation. Done at Brussels, For the Council The President
(1) OJ L 209, 2.8.1997, p. 1.
(2) Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 e stablishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17).
(3) COM(2022) 780 final.
(4) COM(2023) 62 final.
(5) COM(2023) 168 final.
(6) Regulation (EU) 2023/435 of the European Parliament and of the Council of 27 February 2023 amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans and amending Regulations (EU) No 1303/2013, (EU) 2021/1060 and (EU) 2021/1755, and Directive 2003/87/EC (OJ L 63, 28.2.2023, p. 1).
(7) COM(2023) 141 final .
(8) COM(2022) 583 final .
(9) Council Implementing Decision of 17 July 202 2 on the approval of the assessment of the recovery and resilience plan for Poland (ST 9728/22 ; ST 9728 /2 2 ADD 1) .
(10) SWD(2023) 621 final.
(11) Eurostat-Euro Indicators, 47/2023, 21.4.2023.
(12) COM(2023) 631 final , 24 .5.2023.
(13) COM(2023) 141 final, 8.3.2023.
(14) Council Recommendation of 18 June 2021 delivering a Council opinion on the 2021 Convergence Programme of Poland, OJ C 304, 29.7.2021, p. 98 .
(15) The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding Covid-19 crisis-related temporary emergency measures but including expenditure financed by non-repayable support (grants) from the Recovery and Resilience Facility and other EU funds, relative to medium-term potential growth. For more details see Box 1 in the Fiscal Statistical Tables.
(16) Other nationally financed capital expenditure provided an expansionary contribution of 0.8 percentage points of GDP, largely reflecting government support to financial institutions .
(17) The figure represents the level of annual budgetary cost of those measures, including current revenue and expenditure as well as – where relevant – capital expenditure measures.
(18) Council Recommendation of 12 July 2022 on the 2022 National Reform Programme of Poland and delivering a Council opinion on the 2022 Convergence Programme of Poland, OJ C 334, 1.9.2022, p. 171 .
(19) Based on the Commission spring 2023 forecast, the medium-term (10-year average) potential output growth of Poland, which is used to measure the fiscal stance, is estimated at 15.5% in nominal terms.
(20) Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0.6 percentage points of GDP, reflecting the withdrawal effect of the government support to financial institutions in 2022.
(21) Cf. Article 5 of Council Regulation (EC) N o 1466/97, which also requires an adjustment of more than 0.5% of GDP for Member States with a government debt exceeding 60% of GDP , or with more pronounced debt sustainability risks.
(22) T he Commission estimated that Poland would need an average annual increase in the structural primary balance as a share of GDP of 0.4 percentage points to achieve a plausible debt reduction or to ensure that government debt is kept at prudent levels in the medium term. This estimate was based on the Commission autumn 2022 forecast . The starting point for this estimate was the projected government deficit and debt for 2024 which assumed the withdrawal of energy support measures in 2024.
(23) Net primary expenditure is defined as nationally financed expenditure net of discretionary revenues measures and excluding interest expenditure as well as cyclical unemployment expenditure.
(24) Council Regulation (EU) 2022/1369 . Council Regulation (EU) 2023/706
(25) Under Article s 5(2) and 9(2) of Council Regulation (EC) No 1466/97.